Currency Manipulator Monitoring List – UPSC Prelims

  • The United States has added India along with Taiwan and Thailand to the ‘monitoring list’ of currency manipulating countries that includes major trading partners like China and six others.
  • India had been included in the watch list in 2018 and it was removed in 2019. So it is not the first time.
  • Definition of Currency Manipulator: The US Treasury department defines currency manipulation as when countries deliberately influence the exchange rate between their currency and the US dollar to gain unfair competitive advantage in international trade.
  • Criteria: To be labelled a manipulator by the U.S. Treasury, countries must
    • At least have a $20 billion-plus bilateral trade surplus with the U.S.
    • Foreign currency intervention exceeding 2% of gross domestic product and
    • Global current account surplus exceeding 2% of GDP.
  • Implications: 
    • Once a country is designated as a currency manipulator by the U.S., the next step taken by the US government is to seek negotiations with the government accused of manipulation.
    • The surge of global liquidity added by global central banks have led to strong inflows into emerging economies like India.
    • In the past, a sudden appreciation in the rupee had led to disruptive corrections.
    • To prevent this sudden appreciation, the RBI has absorbed a large chunk of forex inflows.
    • With India on the watchlist, it could lead to RBI being somewhat guarded on aggressive forex intervention.

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