USA adds India to currency manipulator watchlist

How do we define the term currency manipulator? This is an expression that the U.S. government gives to countries that it believes are engaged in "unfair currency exercises" by purposely manipulating their currency against the dollar.In order to achieve an unfair competitive advantage over others, this exercise would mean that the nation in question is deliberately decreasing the value of the currency. This is because the devaluation would cut the cost of exports from such a country and, as a result, artificially reflect a decrease in trade deficits.

The criteria for being on the list of currency manipulator requires an economy that meets two of the three criteria set out in the Trade Facilitation and Trade Enforcement Act of 2015. It involves:

1. A "considerable" bilateral trade surplus with the U.S. over a 12-month period, one that is at least $20 billion.

2. A surplus of the commodity current account constitutes at least 2% of the gross domestic product (GDP) for a 12-month period.

3. "Persistent," one-sided intrusion, where, in at least six out of 12 months, net foreign currency transactions total at least 2 percent of the country's GDP over a 12-month period are carried out repeatedly.

According to the U.S. Department of Treasury, when a country is on the Monitoring List, an economy will remain there for a minimum of two consecutive reports to help assure that any change in results versus criteria is durable and is not because of temporary factors.

The administration will also include and keep every major US trading partner to the monitoring list, comprising a "large and disproportionate share" of the global U.S. trade deficit, "even if the economy has failed to meet two of the three criteria set out in the 2015 Act."

In its recent report to the U.S. Congress, the U.S. Department of the Treasury Office of International Affairs listed India, Taiwan and Thailand on its monitoring list of global trade partners that require special attention on their currency activities and macroeconomic policies.

China, Japan, Korea, Germany, Italy, Singapore and Malaysia are the other countries on the new list.

In October 2018, India was last included in the currency watchlist but omitted from the list that happened to come out in May 2019. The report also stated that India and Singapore were also "sustained, asymmetric manner" in the foreign exchange market, but that they did not comply with other manipulator designation conditions. The labelling of a country as a currency manipulator does not attract any fines immediately, but tends to undermine a country's trust in global capital markets.

According to the latest data, India, which has held a "considerable" bilateral goods trade surplus with the U.S. for many years, crossed the $20 billion mark. In the first four quarters until June 2020, the bilateral goods trade surplus totalled $22 billion.

Based on the intervention details of the central bank, India's net foreign exchange purchases increased in the second half of 2019 in particular. Indeed, the pandemic's first net trades, which boosted net foreign exchange purchases to $64 bn or 2,4 percent GDP, increased in four quarters to June 2020, sustained India for much of the first half of 2020 after sales.

Thank you.

Regards,

Sneha Singh,

Kautilya,

IBS Mumbai.