The US Department of Treasury has removed India, along with Italy and Mexico, from its Currency Monitoring list .
What the Report Suggested:
The report stated that China’s failures to publish foreign currency intervention and the general lack of transparency about key features of its exchange-rate mechanism make it an anomaly among major economies. This warrants Treasury’s close scrutiny.
It said that the countries removed from the list had only met one of three criteria for two consecutive reporting periods.
Surprisingly Switzerland again exceeded the thresholds for each of these criteria. This is a parameter to being labelled as a “Currency Manipulator”.
However, the Report did not use this term and the Treasury Department maintained there was not enough evidence for the label to be used for Switzerland. A media note stated that the Treasury would continue its enhanced bilateral engagement to Switzerland to discuss the Swiss authorities’ policy options to address its external imbalances.
What does the removal of India from the List mean?
The US Treasury Department removed India from its list. This can be viewed as good news for India’s market aspects and for India’s monetary policy-making. According to Indian market experts, this means that the Reserve Bank of India can take strong measures to manage exchange rates without being labeled as a currency manipulator. This is a major win for markets and a sign of India’s growing importance in global growth.
The Reserve Bank of India recently took measures to manage currency exchange rates during the rupee’s fall. They increased their purchases of dollars in excess inflows and sold dollars when there was outflow. Experts also see this as good news, with the view that the Rupee may appreciate due to this.
Three criteria for the Currency Monitoring list
The US Treasury will usually list a country if it has made currency market interventions exceeding 2% of its GDP in the past year and had a surplus at the current account above a specified level. The country’s net foreign currency purchases must also exceed 2% of its GDP for a year.
The list includes countries that meet two of the three criteria set forth in the Trade Facilitation and Trade Enforcement Act of 2015. If all three criteria are met, the country is included in the list. The US Department of Treasury labels it a “currency manipulator”. A country that is added to the currency monitoring list will be there for two consecutive reports, “to ensure that any improvement in performance against the criteria is permanent and not temporary.”
Janet Yellen stated, “This is the first time I have been to India as Treasury secretary, and I’m delighted that we are here as India celebrates 75 years of independence and prepares for the G20 presidency.” America is an indispensable partner in India, as President Biden stated.