India on US’s “Currency Watch list”

What is the News?

 The US treasury places India along with 10 other countries on its currency watch list.

What is Currency Manipulator:

• Current Manipulators are countries 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. By that, it aims to gain an unfair advantage over others.
• This is because the devaluation would reduce the cost of exports from that country. Thus, more exports will result in a reduction in trade deficits.

Criteria: US places a country on Currency Watch List if it is meeting any two of the below three criteria. This includes:

• A “significant” bilateral trade surplus with the US — at least USD 20 billion over a 12-month period.
• A current account surplus equivalent to at least 2% of gross domestic product (GDP) over a 12-month period.
• “Persistent”, one-sided intervention — when net purchases of foreign currency totals at least 2% of the country’s GDP over a 12-month period. Further, it is conducted repeatedly, in at least six out of 12 months.

Impact: The designation of a country as a currency manipulator does not immediately attract any penalties. However, it lowers the confidence about a country in the global financial markets.

Why was India included in the Currency watch list?

• India has met two of the three criteria — the trade surplus criterion and the “persistent, one-sided intervention” criterion.
• Further, the other 10 countries on the list with India are China, Japan, Korea, Germany, Ireland, Italy, Malaysia, Singapore, Thailand, and Mexico. All of these, except Ireland and Mexico were on the December 2020 list.

Source: The Hindu