India has been included on a currency manipulation watchlist by the United States government. In its semi-annual report to the US Congress, the Department of Treasury included India and nine other countries on its watchlist monitoring currency practices and macroeconomic policies.
This falls just below the designation of 'currency manipulators', which the US government has given Switzerland and Vietnam in its report.
However, the Treasury welcomed transparency in how India reports its data, with the report appreciating India's transparency in how it published its intervention data in foreign exchange, which showed it purchasing excessive foreign reserves worth $64 billion, or 2.4% of gross domestic product (GDP) in the four quarters ending June 2020. Data from MarketWatch shows the Indian rupee depreciating 3.1% year-to-date.
Further, the Treasury encouraged India to limit foreign exchange intervention to periods of volatility, and to let the rupee adjust according to prevailing economics. It also encouraged India to open the economy more to foreign investors to support recovery post the pandemic economic hit and to fortify long-term growth.
India, Thailand and Taiwan have been added on this edition of the report. It joins China, Japan, Korea, Germany, Italy, Singapore and Malaysia on the watchlist. Ireland has been removed from the watchlist in this edition of the report.
Currency manipulation is a practice by which countries deliberately controls the exchange value of their currency instead of letting them be determined by economic forces, to give them an advantage in international trade or policy. For example, through policies like these, countries could keep their currency weaker than it should be, therefore encouraging exports by making them more attractive abroad, and discouraging imports by making them less affordable at home. The practice often become an issue of international economic diplomacy, as it has a cascading effect businesses and workers due to unfair trade.
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From the US' perspective, the Treasury outlines these currency practices as, "[to] consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade."
US President Donald Trump has often riled against China and European economies for keeping their currency low and hurting the US economy.
How are currency manipulators decided?
The Treasures lists three criteria for currency manipulation. To be added on the watchlist, a country would have to fulfill any two of the three. After being on the watchlist, the countries are kept there for two subsequent to take steps to rectify any practices that they may have in that regard.
Switzerland and Vietnam, labelled currency manipulators in this report, fulfill all three criteria.
The criteria outlined by the report are:
- A bilateral trade surplus (excluding services) with the US of over $20 billion over a 12 month period.
- A current account surplus of atleast 2% of GDP over a 12 month period
- A country carries out persistent unilateral interventions in foreign exchange markets in 6 out of the last 12 months. Further, these interventions need to be worth 2% of a country's GDP
The Treasury justifies these criteria by saying, "Treasury's goal in establishing these thresholds is to identify where potentially unfair currency practices or excessive external imbalances that could weigh on U.S. growth or harm U.S. workers and businesses may be emerging."
Read the Treasury's report here.