U.S. puts India on ‘currency manipulators’ monitoring list

Topics Covered: Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.

U.S. puts India on ‘currency manipulators’ monitoring list:

Context:

The U.S. Treasury has labeled Switzerland and Vietnam as currency manipulators.

It has also added three new names- Taiwan, Thailand and India- to a watch list of countries it suspects of taking measures to devalue their currencies against the dollar.

To be labeled a manipulator by the U.S. Treasury:

Countries must at least have a $20 billion-plus bilateral trade surplus with the U.S.
Foreign currency intervention exceeding 2% of gross domestic product.
A global current account surplus exceeding 2% of GDP.

Reasons:

In the year through June 2020 Switzerland and Vietnam had intervened heavily in currency markets to prevent effective balance of payments adjustments.
India and Singapore had intervened in the foreign exchange market in a “sustained, asymmetric manner” but did not meet other requirements to warrant designation as manipulators.

Implications:

While the designation of a country as a currency manipulator does not immediately attract any penalties, it tends to dent the confidence about a country in the global financial markets.

What is currency manipulation and who determines it?

The US Department of the Treasury publishes a semi-annual report in which the developments in global economic and exchange rate policies are reviewed.
If a US trade partner meets three assessment criteria, the US labels it a currency manipulator.
The US Treasury department defines currency manipulation as when countries deliberately influence the exchange rate between their currency and the US dollar to gain “unfair competitive advantage in international trade”.

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