The US has removed India and four other countries from its Currency Monitoring List. News18 Gujarati (Representational Image)
The United States dropped India and four other countries from its Currency Monitoring List on Friday (11 November). The US Department of Treasury in its biannual report to Congress announced that Italy, Mexico, Vietnam and Thailand have also been removed from the list.
The treasury department said that those removed from the list met only one out of three criteria in the Trade Facilitation and Trade Enforcement Act of 2015 for two consecutive reports.
Notably, the list came on the same day when Secretary of the Treasury Janet Yellen met Union finance minister Nirmala Sitharaman in New Delhi.
What is US’ Currency Monitoring List and what are the criteria to add an economy there? Why is India’s removal ‘good news’? Which countries currently feature on the list? We explain.
Currency Monitoring List
The treasury department has set up Currency Monitoring List to keep an eye on major US trading partners’ currency practices and macroeconomic policies.
On Thursday, the treasury submitted its semiannual report to Congress on ‘Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States’, which assessed the policies of the US trading partners during the last four quarters concluding in June 2022.
The report also contained a review of the treasury’s ‘monitoring list’.
How do economies end up on the Currency Monitoring List?
According to the report, the economies that fulfil two of the three criteria in the 2015 Act are included in the list.
A country, once added to the monitoring list, will remain there for at least two consecutive reports “to help ensure that any improvement in performance versus the criteria is durable and is not due to temporary factors”.
The Currency Monitoring List was released on the day US treasury secretary Janet Yellen met finance minister Nirmala Sitharaman. PTI
The treasury in its November report reviewed the macroeconomic and exchange rate policies of the 20 largest trading partners of the US for the three criteria mentioned below:
A significant bilateral trade surplus with the US is a trade surplus of at least $15 billion in goods and services.
As per the treasury, a material current account surplus is a surplus that is at least 3 per cent of the GDP “or a surplus for which the 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 eight out of 12 months, and these net purchases total at least 2 per cent of an economy’s GDP over a 12-month period,” says the department.
Why India’s removal is beneficial
When a country is added to the list, it is being watched for potential ‘currency manipulation’.
Currency manipulator is a label accorded by the US to countries that Washington says engage in “unfair currency practices” for a competitive advantage in global trade.
The practice would include that a country has intentionally devalued its currency against the dollar, which would decrease the cost of exports from that country and “artificially show a reduction in trade deficits”, as per Indian Express.
India was dropped from the list after featuring on it for nearly two years.
On India’s removal, Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors, told News18, “For India, it is good news as we were designated a currency manipulator. The rupee could appreciate on account of this.”
Another expert hailed the economy being dropped from the list, saying the move indicates the “growing role of India in global growth”.
“This (the removal from US’ Currency Monitoring List) 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. This is a big win from a markets standpoint and also signifies the growing role of India in global growth,” Vivek Iyer, partner and leader (financial services risk) at Grant Thornton Bharat, was quoted as saying by News18.
In 2021, the treasury department had again put India on the monitoring list, along with 10 other economies, including Singapore and Mexico.
Earlier in June this year, Washington had once again kept India along with 11 other major economies on the list, arguing that New Delhi met two of the three criteria in the December 2021 and the April 2021 reports, as per PTI.
Which countries are currently on the monitoring list?
Seven economies including China, Japan, Korea, Germany, Malaysia, Singapore and Taiwan remain on the monitoring list.
Hitting out at Beijing, the treasury department said, “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”.
A senior treasury official told Reuters that attempts by the US treasury and the International Monetary Fund (IMF) “had failed to make any headway with Beijing on the issue so far”.
The biannual report also noted that Switzerland again surpassed US thresholds for possible ‘currency manipulation’, however, it abstained from declaring it a currency manipulator, notes Reuters.
With inputs from agencies
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