US’ Currency Monitoring List

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    • India is among the few countries recently removed from the United States Currency Monitoring List which is released by the Department of Treasury.

    What is the US’ Currency Monitoring List? 

    • It is a biannual report to Congress. 
    • The report reviews the policies of the US’ trading partners during the last four quarters ending in June 2022. 
    • It has also removed Italy, Mexico, Vietnam and Thailand from the list.
    • The report also includes a review of the Treasury’s ‘Monitoring List’.
      • The list closely monitors the currency practices and policies of some of the US’ major trade partners.
    • The report states that economies that meet two or three criteria in the 2015 Act are placed on the list.
    • Once on the list, an economy will remain there for at least two consecutive reports so that the Treasury can assess whether any improvements in performance are durable and not due to temporary factors. 

    The Treasury Department has to assess the macroeconomic and exchange rate policies of the US’ trading partners for three specific criteria:

    • A significant bilateral trade surplus with the United States is a goods and services trade surplus that is at least $15 billion
    • A material current account surplus is one that is at least 3% of GDP, or a surplus for which Treasury estimates there is a material current account gap using Treasury’s Global Exchange Rate Assessment Framework (GERAF).
    • Persistent, one-sided intervention occurs when net purchases of foreign currency are conducted repeatedly, in at least 8 out of 12 months, and these net purchases total at least 2% of an economy’s GDP over a 12-month period.

    What is a Currency Manipulator?

    • A currency manipulator is a designation applied by US government authorities to countries that engage in “unfair currency practices” for a trade advantage.
    • Putting a country under the Currency Monitoring List would mean that the country is artificially lowering the value of its currency to gain an unfair advantage over others. 
      • This is because the lower value of the currency will lead to a reduction of the export costs from that country.

    Which countries are on the US’ currency monitoring list? 

    • China
    • Japan
    • Korea
    • Germany
    • Malaysia
    • Singapore
    • Taiwan

    Why was India removed from the list?

    • India and four other countries were removed from the Monitoring List as they now only met one of the three criteria for two consecutive reports
    • India has been on the list for about two years.
    • China’s failure to publish foreign exchange intervention and broader lack of transparency around key features of its exchange rate mechanism makes it an outlier among major economies and warrants Treasury’s close monitoring. 

    Implications/ Significance

    • Managing the exchange rates effectively: This means that the Reserve Bank of India (RBI) can now take robust measures to manage the exchange rates effectively without being tagged as a currency manipulator.
    • Growing role of India: This is a big win from a markets standpoint and also signifies the growing role of India in global growth.
    • It signifies strong trade; investment and people-to-people ties make bilateral, economic, and financial relationships, a critical element to India-USA partnership. 

    Source: IE