Explained: What is Currency Manipulation, and Why Did the US Put India and Others on its Currency Watch List?

Written by Prabha Raghavan, published by Explained Desk | New Delhi |

Updated: December 17, 2020, 4:04:16 pm





Currency Manipulation, Explained Currency Manipulation, What Is Currency Manipulation, Indian Currency Manipulator, US Currency Watch List, Indian Currency Watch List, Indian ExpressCurrency manipulation is when a country artificially lowers the value of its currency in order to gain an unfair advantage over another. (Bloomberg Photo: Dhiraj Singh, File)

The United States has reintroduced India to its watch list of countries with potentially “questionable foreign exchange 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 the US government gives to countries that they believe are engaging in “unfair currency practices” by deliberately devaluing their currency against the dollar. The practice would mean that the country in question artificially depreciates the value of its currency in order to gain an unfair advantage over others. This is because the devaluation would lower the cost of exporting from that country and thereby artificially reduce trade deficits. 📣 Follow the express explained in the telegram

Which parameters are used?

An economy that meets two of the three criteria of the Trade Facilitation and Enforcement Act 2015 will be placed on the watchlist. This contains:

1. A “significant” bilateral trade surplus with the US – one that is at least $ 20 billion over a 12 month period.

2. A substantial 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 foreign currency purchases of at least 2 percent of the country’s GDP over a 12 month period are repeated for at least six months out of twelve.

Once on the watchlist, an economy will stay there for at least two consecutive reports “to ensure that improvement in performance over criteria is permanent and not due to transient factors,” according to the Treasury Department.

The government will also put on the watchlist and keep on the watch list all major US trading partners who represent a “large and disproportionate” share of the total US trade deficit, “even if that economy does not meet two of the three criteria of the 2015 bill Has “.

What are the other countries on the latest watchlist?

In its latest report to the US Congress, the US Treasury Department for International Affairs added India, Taiwan and Thailand to its watch list of key trading partners who deserve “special attention” for their monetary practices and macroeconomic policies.

Other countries in the latest list are China, Japan, Korea, Germany, Italy, Singapore, Malaysia.

India was last added to the currency watch list in October 2018, but was removed from the list published in May 2019.

Designating a country as a currency manipulator does not result in immediate penalties, but tends to affect a country’s confidence in global financial markets.

Why is India back on the watchlist?

India, which has had a “significant” bilateral goods trade surplus with the US for several years, topped the $ 20 billion mark, according to the latest report. The bilateral goods trade surplus for the first four quarters through June 2020 was $ 22 billion.

Based on central bank intervention data, net purchases of foreign currency in India accelerated particularly in the second half of 2019. Following sales during the first outbreak of the pandemic, India maintained net purchases for much of the first half of 2020, boosting net purchases of foreign currency $ 64 billion – or 2.4% of GDP – in the four quarters ending June 2020.

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