India Removed from the US Currency Monitoring List: All you need to know

On Friday, the US Department of Treasury removed India from its Currency Monitoring List of major trading collaborators after two years.

The list warrants eager attention to the countries’ currency practices and macroeconomic policies.

Countries like Italy, Mexico, Thailand and Vietnam have also been removed from the list along with India.

The biannual report to the US Congress states that the country’s Department of Treasury declared that China, Japan, Korea, Germany, Malaysia, Singapore and Taiwan are the seven economies that are currently part of the latest monitoring list.

Those countries that are removed from the list have fulfilled one out of three criteria for two consecutive reports in each case. 

If a country is on the Currency Monitoring List, that economy stays there for at least for two consecutive reports.

The presented report of the US treasury department reviewed and evaluated the policies of the main US trading partners, including roughly 80 percent of US foreign trade in goods and services, during the four quarters through June 2022.

Is it good news for India?

If a country is on the US’ Currency Monitoring List that country is considered a ‘currency manipulator’.

 A currency manipulator is an identification given by the US government authorities. This name pertains to countries that commit unfair currency methods for a trade advantage.

Vivek Iyer, partner and leader at Grant Thornton Bharat, stated, 

“This (the removal from US’ Currency Monitoring List) means that the Reserve Bank of India (RBI) can now take robust measures to manage the exchange rates effectively, without being tagged as a currency manipulator.

This is a big win from a markets standpoint and also signifies the growing role of India in global growth."

To balance trade rates amid the rupee fall, the RBI recently took steps like buying dollars at the time of excess inflows and selling dollars at the time of outflows.

Head (treasury) at Finrex Treasury Advisors,Anil Kumar Bhansali, explained, 

“For India, it is good news as we were designated a currency manipulator. The rupee could appreciate on account of this."

What is a Currency Monitoring List?

Placing a country under the Currency Monitoring List would indicate that the country is artificially diminishing the value of its currency to earn an unfair benefit over others. 

The reason behind this is that the lower the value of the currency is, the more reduction of the export costs would be from that country.

 A semi-annual report is released by   The US Department of Treasury, which tracks global economic developments. The foreign exchange rates are also reviewed in this report.

Apart from that the report reviews the currency practices of the US’ 20 biggest trading partners.

The Three Criteria of the Currency Monitoring List

There are in total three criteria, based on which a country is placed under the currency watch list.

If a country meets two of the three criteria in the US’ Trade Facilitation and Trade Enforcement Act of 2015, that nation is placed under the Currency Monitoring List.

In the current report it has been reviewed that the 20 largest US trading partners have made the cut for the three criteria in the 2015 Act:

1) A significant bilateral trade surplus with the United States is a goods and services trade surplus that is at least $15 billion.

2) A material current account surplus is one that is at least 3 per cent of GDP, or a surplus for which Treasury estimates there is a material current account “gap” using Treasury’s Global Exchange Rate Assessment Framework (GERAF).

3) Persistent, one-sided intervention occurs when net purchases of foreign currency are conducted repeatedly, in at least 8 out of 12 months, and these net purchases total at least 2 percent of an economy’s GDP over a 12-month period.

If a country meets the criteria, it is tagged as a ‘currency manipulator’ by the US Department of Treasury. 

If an economy is on the Monitoring List, it will stay there for two consecutive reports at least .

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