Fri. Sep 20th, 2019

Aaj Ka Gyan

Think beyond the limits

Trade News: US removed India from the Currency Monitoring list.

3 min read

Switzerland is also removed from the Currency Monitoring list but China and Japan are still there.

currency monitoring list

US removed India from the currency monitoring list on Wednesday 29th, 2019. The Donald Trump administration took the decision to remove India from its monitoring list for currency manipulation of major trading partners.

In the current semi-annual foreign exchange report presented to Congress, administration of US eliminated India and Switzerland from its currency monitoring list. However, the list still includes China, South Korea, Japan, Malaysia, Singapore, Vietnam, Ireland, and Italy.

“India has been removed from the monitoring list in this report, having met only one out of three criteria – a significant bilateral surplus with the US – for two consecutive reports,” the Treasury Department said presenting the report to the Congress on macroeconomics and foreign exchange policies of major trading partners of the US.

“Neither Switzerland nor India met the criteria for having engaged in persistent, one-sided intervention in either the October 2018 report or this report. Both Switzerland and India have been removed from the monitoring list,” the Treasury said in its report of 40 pages.

“After purchasing foreign exchange on net in 2017, the central bank steadily sold reserves for most of 2018, with net sales of foreign exchange reaching 1.7 percent of GDP over the year”, report says. “India maintains ample reserves according to the IMF metrics for reserve adequacy” according to the report.

This is a positive development for India as it is out of the currency watch list radar, which could have ultimately led to a tag of being a currency manipulator. Country indulges in manipulating the currency exchange rates to gain an unfair competitive advantage in international trade end up with this tag.

The US Department of Treasury releases the semi-annual report where it has to track developments in international economies and inspect foreign exchange rates. If any trade partner of the US meets a three-assessment review, bilateral talks are held to resolve the issues.

What are the Three criteria?

The pain threshold for the current account surplus was lowered to 2% from 3% of GDP. On one-sided currency interventions, the limit for net forex purchases has been left untouched at 2% of GDP but the observation period has been tightened to 6-12 months from 8-12 months previously. The third criteria, a country’s bilateral trade surplus with the US, was unchanged at $20 billion.

India just met the third criteria as its bilateral trade surplus with the US stood at $21 billion in 2018. So the Department of Treasury decided to remove India from the list.

“India’s circumstances have shifted markedly, as the central bank’s net sales of foreign exchange over the first six months of 2018 led net purchases over the four quarters through June 2018 to fall to USD 4 billion, or 0.2 percent of the GDP,” according to the October 2018 reports of Treasury.