What are the criteria to name a country as a ‘currency manipulator’? Why India is included in the U.S currency watch list? How will it impact India?
Refer – The Indian Express
IAS Parliament 6 years
KEY POINTS
· The three pre-conditions for being named currency manipulator are:
1. a trade surplus of over $20 billion with the US
2. a current account deficit surplus of 3% of the GDP
3. persistent foreign exchange purchases of 2% plus of the GDP over 12 months
· India meets 2 of the 3 stated aspects
1. having a significant bilateral surplus with the US
2. having engaged in persistent, one-sided intervention in foreign exchange markets
· Through this the US Treasury Department has warranted placing India on the aforementioned “Monitoring List”.
· Notably, 5 other countries namely - China, Germany, Japan, South Korea and Switzerland are already on the list.
· But, the move is largely unjustified as RBI interventions in the forex market were on account of a surplus capital account and not for undervaluing the Rupee.
Impact for India
· The mechanical way in which the US Treasury interprets its three main parameters for identifying currency manipulation is almost scandalous.
· If a country such as China with a massive bilateral trade surplus with the US, a large current account surplus with the rest of the world, and historically unprecedented management of its exchange rate is still only on the watch list, then the chances of India being actually termed a currency manipulator are slim.
· Meanwhile, Indian policymakers have to be sensitive and need to see the current events in the backdrop of U.S. charging into a trade war that has much of the world on tenterhooks.
