Syllabus Section: Economy
Why in News?
The United States has once again included India in its monitoring list of countries with potentially “questionable foreign exchange policies” and “currency manipulation”
What is the meaning of Currency Manipulation?
• This is a label given by the US government to countries it feels are engaging in “unfair currency practices” by deliberately devaluing their currency against the dollar.
• The practice would mean that the country in question is artificially lowering the value of its currency to gain an unfair advantage over others, because the devaluation would reduce the cost of exports from that country and artificially show a reduction in trade deficits as a result.
Criteria Used to Put the country in the list.
An economy meeting two of the three criteria in the Trade Facilitation and Trade Enforcement Act of 2015 is placed on the Monitoring List.Criteria’s are:
1. A “significant” bilateral trade surplus with the US — one that is at least $20 billion over a 12-month period.
2. A material current account surplus equivalent to at least 2 percent of gross domestic product (GDP) over a 12-month period.
3. “Persistent”, one-sided intervention — when net purchases of foreign currency totaling at least 2 percent of the country’s GDP over a 12 month period are conducted repeatedly, in at least six out of 12 months.
Once on the Monitoring List, an economy will remain there for at least two consecutive reports “to help ensure that any improvement in performance versus the criteria is durable and is not due to temporary factors.
• The US Department of the Treasury Office of International Affairs, in its latest report to the US Congress, has included India, Taiwan and Thailand to its Monitoring List of major trading partners that “merit close attention” to their currency practices and macroeconomic policies.
• Other countries in the latest list comprise China, Japan, Korea, Germany, Italy, Singapore, Malaysia.
• India was last included in the currency watchlist in October 2018, but removed from the list that came out in May 2019.
• The designation of a country as a currency manipulator does not immediately attract any penalties, but tends to dent the confidence about a country in the global financial markets.
SOURCE – INDIAN EXPRESS