India put on currency manipulator listDate: 18 December 2020 Tags: Miscellaneous
The United States has once again included India in its monitoring list of countries with “currency manipulation” policies.
This move comes a year after India was removed from the watchlist in the US Treasury Department’s semi-annual foreign-exchange report to the US Congress.
Currency manipulator 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.
Parameters to classify currency manipulators
A significant bilateral trade surplus with the US, which is at least $20 billion over a 12-month period.
A material current account surplus equivalent to at least 2 percent of gross domestic product (GDP) over a 12-month period.
When net purchases of foreign currency totalling at least 2 percent of the country’s GDP over a 12 month period are conducted repeatedly, in at least six out of 12 months.
Other countries on the list
Other countries in the latest list comprise China, Japan, Korea, Germany, Italy, Singapore, Malaysia, Taiwan and Thailand.
India was last included in the currency watchlist in October 2018, but removed from the list that came out in May 2019.
Why India has been included?
India’s bilateral goods trade surplus with the US totalled $22 billion in the first four quarters through June 2020, which is more than the $20 billion threshold.
India’s net purchases of foreign exchange accelerated notably in the second half of 2019. This pushed net purchases of foreign exchange to $64 billion–or 2.4% of GDP–over the four quarters through June 2020.
Implications of the move
The designation of a country as a currency manipulator does not immediately attract any penalties, but tends to dent the confidence about a country in the global financial markets.