The US treasury places India along with 10 other countries on its currency watch list.
What is Currency Manipulator?
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Current Manipulators are countries engaging in “unfair currency practices” by deliberately devaluing their currency against the dollar.
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The practice would mean that the country in question is artificially lowering the value of its currency. By that, it aims to gain an unfair advantage over others.
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This is because the devaluation would reduce the cost of exports from that country. Thus, more exports will result in a reduction in trade deficits.
Criteria: US places a country on Currency Watch List if it is meeting any two of the below three criteria. This includes:
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A “significant” bilateral trade surplus with the US — at least USD 20 billion over a 12-month period.
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A current account surplus equivalent to at least 2% of gross domestic product (GDP) over a 12-month period.
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“Persistent”, one-sided intervention — when net purchases of foreign currency totals at least 2% of the country’s GDP over a 12-month period. Further, it is conducted repeatedly, in at least six out of 12 months.
Impact: The designation of a country as a currency manipulator does not immediately attract any penalties. However, it lowers the confidence about a country in the global financial markets.
Why was India included in the Currency watch list?
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India has met two of the three criteria – the trade surplus criterion and the “persistent, one-sided intervention” criterion.