Currency Monitoring List is Good or Bad

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The US Department of Treasury has withdrawn India from its ‘Currency Monitoring list’ of significant trading partners, along with Italy, Mexico, Thailand, and Vietnam. The decision was taken on the same day that Treasury Secretary (Just like the Finance Minister of India) Janet Yellen visited New Delhi and spoke to Finance Minister Nirmala Sitharaman.

In this article, we will discuss whether the currency Monitoring list is good or bad and the significance of India’s removal from the list.

‘US Currency Monitoring ‘ in News

▪ The United States Treasury Department has removed India from its Currency Monitoring List of major trading partners, as stated in their biannual report to Congress.

▪ Additionally, Mexico, Thailand, Italy, and Vietnam have also been removed from the list. The current list now includes Japan, China, Korea, Singapore, Germany, Malaysia, and Taiwan.

What is the US Currency Monitoring list?

▪ The US Currency Monitoring List closely monitors the currency practices and policies of some of the United States’ major trade partners.

Also, See Currencies in News 2022, the Latest economy current affairs

Who published the list?

▪ The US Department of Treasury releases the Currency Monitoring List every two years, which tracks global economic developments and examines currency exchange rates.

▪The list is released as a part of the semiannual Report to Congress on ‘Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States’.

▪ The US Currency Monitoring List is published twice a year, every six months intervals.

Duration of US Currency Monitoring list

▪ After a country or economy is added to the US Currency Monitoring List, it will remain on the list for a minimum of two consecutive reports, allowing the Treasury Department to evaluate whether any improvements in performance are sustainable and not caused by temporary circumstances.

Criteria for adding in the list

▪ The Currency Monitoring list includes countries or economies that meet two or three criteria outlined in the Trade Facilitation and Trade Enforcement Act of 2015. The three Criteria for adding in the list:

  1. The sizable bilateral trade surplus with the US: The country must have a trade surplus with the United States of at least $15 billion, which includes both goods and services.
  1. A significant surplus in the current account: The country must have a current account surplus that is at least 3% of its GDP, or a surplus that the Treasury determines to be a significant“gap” using the Treasury’s Global Exchange Rate Assessment Framework (GERAF).
  1. Persistent, one-sided intervention: ‘Persistent’ one-sided intervention is taking place when a country repeatedly purchases foreign currency over a period of at least 8 out of 12 months, and the total amount of these purchases is at least 2% of the country’s GDP over the same 12-month period.

▪ A country that meets two out of three criteria specified in the Trade Facilitation and Trade Enforcement Act of 2015 will be added to the monitoring list. If the country meets all three criteria, it will be designated as a “currency manipulator” by the US Department of Treasury.

Countries/economies on the list:

▪ The United States has recently removed India from its currency monitoring list. However, according to reports, there are still seven other countries on the list, including China, Japan, South Korea, Germany, Malaysia, Singapore, and Taiwan.

The Currency Monitoring List is Good or Bad?

▪ The currency monitoring list is beneficial for the United States as it allows the US to monitor the currencies of its major trading partners, in case they engage in unfair currency practices to increase their exports.

▪ The report from the Treasury Department evaluated whether the exchange rate between the US dollar and the currencies of its trading partners has been manipulated in order to gain an unfair advantage in international trade and hinder effective adjustments to the balance of payments.

What does unfair currency practice mean?

▪ A deliberate devaluation of a country’s or an economy’s currency against the US dollar is considered an unfair currency practice.

▪ In other words, Artificially lowering the value of a country’s currency in order to gain an unfair advantage over other countries is considered an unfair currency practice.

▪ De-valuation will decrease the cost of imports of a country and raise the exports of the devalued country, therefore diminishing the trade deficit.

How does it reduce a country’s import costs?

▪ For instance, let’s consider a simple example to comprehend this. Suppose country A imports apples from country B at $1 per kg.

▪ In country B, the exchange rate is 1 dollar to 80 rupees, meaning that 1 kilogram of apples costs 80 rupees in that country. If country A wants to import 50 kilograms of apples from country B, it would have to pay $50.

▪ If country B devalues its currency by 20 rupees, the exchange rate will change to 1 dollar to 100 rupees. Now, country A can buy 1.25 kg of apples for that $1.

Previous Rate: 1Kg Apple =Rs/- 80=1$
Current Rate: 1$=Rs/-100= 1Kg (Rs/- 80) + 250 gm (Rs/- 20) = 1.25 kg 

▪ As a result of the devaluation of the currency, country A can now import 62.5 kilograms of apples for $50. This means that country A can now import more apples at the same cost as it was previously able to import 50 kilograms.

How does it increase a country’s export?

▪ Let’s assume that there are five countries where the cost of 1 kilogram of apples is 80 rupees or 1 dollar and they export apples to various countries across the world.

▪ When one of these countries devalues its currency, the price of apples in that country will become lower in comparison to the price of apples in the other four countries.

▪ As a result of lower import costs, more countries will be inclined to purchase apples from that specific country, thus increasing its exports automatically.

How many times has India been added to the list?

▪ India has been added to this list a total of 2 times, it was first added to the US currency monitoring list in December 2018. India was again added to the list for the second time in December 2020.

Is it good for India to be removed from the USA currency monitoring list?

▪ Yes, of course, it’s better to be off the US currency monitoring list. Let’s take a look at the significance of India’s removal from the list.

Currency manipulator tag: When a country is added to the United States currency monitoring list, it is considered a “currency manipulator.” India is no longer considered a currency manipulator by the US government. This designation is given to countries that, according to the US, engage in “unfair currency practices” for trade benefits.

Exchange rate management: The removal of the “currency manipulator” label will permit the Reserve Bank of India (RBI) to take strong measures to manage exchange rates efficiently, without facing the label of being a currency manipulator. This will aid in the appreciation of the value of the rupee.

Global recognition: The revocation of India’s designation as a currency manipulator signifies the country’s increasing significance in worldwide economic expansion.

Frequently Asked Questions (FAQs)

Q1. Which country name is removed from the currency monitoring list?

Answer: The US Department of Treasury removed India from its Currency Monitoring List along with Mexico, Thailand, Italy, and Vietnam.

Q2. Why was India removed from the currency monitoring list?

Answer: India was removed from the list as they now only met one of the three criteria for two consecutive reports.

Q3. When was India first added to the US currency monitoring list?

Answer: 2018

Q4. What is unfair currency practice?

Answer: Manipulation of currency such as artificially lowering the value of a country’s currency in order to gain an unfair advantage over other countries is considered an unfair currency practice.

Q5. Who releases, the currency manipulator Watchlist?

Answer: The US Department of Treasury (Finance department of USA)

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