Updated: December 17, 2020 11:59:48 pm
Currency manipulation is when a country is artificially lowering the value of its currency to gain an unfair advantage over others. (Bloomberg photo: Dhiraj Singh, file)
The United States has once again included India on its watch list of countries with “potentially questionable exchange rate policies” and “currency manipulation.” This comes a year after India was removed from the watch list in the US Treasury Department’s semi-annual foreign exchange report to the US Congress.
What does the term “currency manipulator” mean?
This is a label that the US government gives to countries that it believes are engaging in “unfair monetary 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. This is because devaluation would reduce the cost of that country’s exports and, as a result, artificially show a reduction in trade deficits. 📣 Follow Express explained on Telegram
What are the parameters used?
An economy that meets two of the three criteria of the Trade Facilitation and Enforcement Act 2015 is included in the Watch List. This includes:
1. A “significant” bilateral trade surplus with the United States – one that is at least $ 20 billion over a 12-month period.
2. A material current account surplus equal to at least 2 percent of gross domestic product (GDP) over a 12-month period.
3. “Persistent” unilateral intervention: when net purchases of foreign currency are made for a total of at least 2 percent of the country’s GDP during a 12-month period repeatedly, at least in six of the 12 months.
Once on the Watch List, an economy will remain there for at least two consecutive reports “to help ensure that any improvement in performance against the criteria is long-lasting and not due to temporary factors,” according to the US Treasury Department. U.S.
The administration will also add and retain on the Watch List any major US trading partners that represent a “large and disproportionate” share of the overall US trade deficit, “even if that economy has not met two of the three criteria of the Law of 2015 ”.
What are the other countries on the latest watchlist?
The Office of International Affairs of the US Department of the Treasury, in its latest report to the US Congress, has included India, Taiwan, and Thailand on its Watch List of top trading partners that “deserve a lot of attention. ”To its monetary practices and macroeconomic policies.
Other countries on the most recent list are China, Japan, Korea, Germany, Italy, Singapore, and Malaysia.
India was last included on the currency watch list in October 2018, but was removed from the list that was released in May 2019.
Designating a country as a currency manipulator does not immediately attract any sanctions, but it tends to undermine a country’s confidence in global financial markets.
Why is India back on the watch list?
India, which for several years has maintained a “significant” bilateral trade surplus in goods with the United States, surpassed the $ 20 billion mark, according to the latest report. The bilateral trade surplus for goods totaled $ 22 billion in the first four quarters through June 2020.
According to central bank intervention data, India’s net purchases of foreign currency accelerated markedly in the second half of 2019. Following sales during the initial onset of the pandemic, India maintained net purchases for much of the first half of 2020, which pushed net purchases of foreign exchange to $ 64 billion, or 2.4% of GDP, during the four quarters through June 2020.
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