The United States (US) recently removed India from its ‘Currency Monitoring List’ and it’s a good thing. The list was released by the Department of Treasury on Friday. Apart from India, Italy, Mexico, Vietnam and Thailand have also been removed from the monitoring list. Ever since India’s removal from the list, there has been buzz about how it impacts the country’s market or if it would have any negative implications on the already declining value of money against the dollar.
In this article, we will discuss what India’s removal from the US Currency Monitoring list means, why was the country excluded from the list and how it’s a good thing for the Indian economy.
What is the US’ Currency Monitoring List?
The US Department of Treasury every year presents its semiannual Report to Congress on ‘Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. In this report, the state reviews the policies of the US trading partners during the last four quarters.
A part of this report is a review of the Treasury’s ‘Monitoring List’. This list consists of names of US trading partners whose trade and currency practices and policies are closely monitored by the country.
Any country which makes it to the monitoring list remains there for at least two years. India was removed from the list after about two years.
Why was India removed from US Currency Monitoring List?
To make it to the currency monitoring list, a country has to meet three criteria. These conditions are:
A “significant” bilateral trade surplus with the US — at least $20 billion in 12 months.
2) A material current account surplus equivalent to at least 2 per cent of GDP over a 12-month period.
3) “Persistent”, one-sided intervention — when net purchases of foreign currency totalling at least 2 per cent of the country’s GDP over a 12-month period are conducted repeatedly, in at least six out of 12 months.
When a country fails to meet all three criteria, it is removed from the list. In the case of India, it only met one criterion of the monitoring list and thus, was removed from it after about two years.
How is India’s removal a good thing?
A simple answer to this is that when a country is on the US Currency Monitoring List, it is considered a ‘currency manipulator’. This means India is no more a currency manipulator.
Now currency manipulators are the countries that according to the US engage in “unfair currency practices” for a trade advantage such as subsidies in imports or benefits in export valuation.
According to experts, India’s removal from the currency monitoring list will enable the Reserve Bank of India (RBI) to take robust actions to manage the exchange rates effectively, without being tagged as a currency manipulator.
This is a big win from a market standpoint and also symbolises the growing role of India in global growth. This will also help in appreciating the value of the rupee, which is constantly falling against the dollar
