The US Department of Treasury withdrew India from its list of significant trading partners on its Currency Monitoring List after two years. The macroeconomic policies and monetary practices of the nations on the list deserve careful consideration. Thailand, Vietnam, Italy, Mexico, and India have also been omitted from the list.
The US Department of Treasury listed the seven economies that are now under observation as China, Japan, Korea, Germany, Malaysia, Singapore, and Taiwan in its biannual report to Congress.
It stated that the nations who were taken off the list have only complied with one of the three requirements for two reports in a row. An economy that has been added to the Currency Monitoring List stays there for at least two reports in a row. (Also Read: DNA Explainer: Reason why you can’t see Rs 2000 currency notes)
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The US Treasury Department examined and evaluated major US trading partners' policies in this study, which covered the four quarters through June 2022 and represented almost 80% of US exports of goods and services abroad.
How does it affect India?
A nation is regarded as a "currency manipulator" if it appears on the US Currency Monitoring List. The US government designates nations that use "unfair currency practices" to their advantage in international trade as currency manipulators.
Vivek Iyer, partner and leader (of financial services risk) at Grant Thornton Bharat, said, “This (the removal from US’ Currency Monitoring List) means that the Reserve Bank of India (RBI) can now take robust measures to manage the exchange rates effectively, without being tagged as a currency manipulator. This is a big win from a markets standpoint and also signifies the growing role of India in global growth."
The RBI recently made decisions like buying dollars during times of surplus inflows and selling dollars during times of outflows to control currency rates amid the rupee's decline.
“For India, it is good news as we were designated a currency manipulator. The rupee could appreciate on account of this,” says Anil Kumar Bhansali, head (of treasury) at Finrex Treasury Advisors.
What is Currency Monitoring List?
A nation would be on the Currency Monitoring List if it artificially devalued its currency in order to acquire an unfair competitive advantage. This is because the country's export costs will be reduced as a result of the currency's decreased value.
The US Department of Treasury publishes a biannual report that follows trends in the world economy and analyses currency exchange rates. It also examines the 20 largest trading partners of the United States monetary policies.
What are the three criteria of the Currency Monitoring List?
A country is included in the currency monitoring list based on certain criteria. A nation is added to the Currency Monitoring List if it satisfies two of the three requirements of the US Trade Facilitation and Trade Enforcement Act of 2015.
1) An "important "at least $20 billion in bilateral trade surplus with the US over a 12-month period.
2) A significant current account surplus over a 12-month period of at least 2% of gross domestic product (GDP).
3) "Continuous "One-sided intervention occurs when net purchases of foreign currency amounting to at least 2% of the nation's GDP are made frequently, in at least six out of the year's twelve months.
The US Department of Treasury designates a nation as a "currency manipulator" whenever it satisfies all three requirements. In order to "help verify that any improvement in performance versus the criteria is lasting and is not due to transient circumstances," an economy must be on the Monitoring List for at least two consecutive reports after being included.
