CURRENCY WATCH LIST

CURRENCY WATCH LIST

Subject : International Relations

Context : India is one of 11 countries on the U.S. Treasury’s ‘Monitoring List’ with regard to their currency practices as per the April 2021 edition.

Concept :

Currency Manipulators:

• This is a label given by the US government to countries it feels are 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 to gain an unfair advantage over others. This is because the devaluation would reduce the cost of exports from that country and artificially show a reduction in trade deficits as a result.

Currency Manipulator Watch List:

• The US Department of Treasury releases the semi-annual report where it has to track developments in international economies and inspect foreign exchange rates.
• Criteria: An economy meeting two of the three criteria in the Trade Facilitation and Trade Enforcement Act of 2015 is placed on the Watch List. This includes:
• A “significant” bilateral trade surplus with the US — one that is at least USD 20 billion over a 12-month period.
• A material 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 totalling at least 2% of the country’s GDP over a 12 month period are conducted repeatedly, in at least six out of 12 months.
• Consequence: Inclusion in the list does not subject to any kind of penalty and sanctions but it deteriorates the global financial image of the country in the financial markets in terms of foreign exchange policies including undervaluation of currencies to gain export advantages.