US adds India to currency monitoring list. What happens now?

The US government has added India to the watch list of countries being monitored for currency manipulations. Experts opine that it will help the rupee and bond market as the Reserve Bank of India will be cautious as far as exchange rate management is concerned.

New Delhi:The US Department of Treasury in its latest report added India, Taiwan and Thailand to the ‘Monitoring List’ of countries being tracked for currency manipulations.

Once on the Monitoring List, an economy will remain in the list at least for two consecutive reports. As the US is India’s second-largest trading partner, placing the country in this list has raised some concerns.

Let us find out what is ‘Monitoring List’ and what are the implications for India?

What does the 'currency manipulator' tag indicate?

As per the definition given in the report, ‘currency manipulator’ is a trading partner of the US government that manipulates exchange rates to gain an unfair competitive advantage over the US.

The report further notes that a currency manipulator conducts foreign exchange market intervention in a persistent and one-sided manner that exceeds treasury criteria as mentioned in the Trade Facilitation and Trade Enforcement Act of 2015.

What are the criteria to place a country in the Monitoring List?

If an economy or a trading partner meets at least two of three conditions given below, then the country will be included in the list.

1. Bilateral trade surplus with the US with at least USD 20 billion over a 12-month period.

2. Current account surplus equivalent to at least 2 per cent of Gross Domestic Product (GDP) over a 12-month period.

3. Persistent, one-sided intervention occurs when net purchases of foreign currency are conducted repeatedly, in at least 6 out of 12 months and these net purchases sum up to at least 2% of an economy’s GDP over a 12-month period. As per the report, India has met the first and third conditions listed above.

Besides India, which are other countries placed on the monitoring list?

Besides India, there are nine other countries in the latest monitoring list. These countries are - China, Japan, Korea, Germany, Italy, Singapore, Malaysia, Taiwan and Thailand.

Will there be any penalties on India now?

No. However, since the US is the world’s largest economy, it will affect the confidence of global traders in India’s financial system. However, some experts point out that the latest development will help the rupee and bond market as the Reserve Bank of India will be cautious as far as exchange rate management is concerned.

When was the last time India was on this list?

Previously, India was included in this list in 2018 and was removed in 2019.