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United States’ currency monitoring watchlist

Topic covered:

  1. Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.

 

United States’ currency monitoring watchlist

 

What to study?

For prelims and mains: features, implications and issues associated with this list.

 

Context: The Donald Trump administration has removed India from its currency monitoring watchlist. In its semi-annual foreign-exchange report to the US Congress, the Treasury Department did not mention India’s name in its watchlist of countries with potentially “questionable” foreign exchange policies and currency “manipulation”.

 

Countries in the list:

India, alongside China, Japan, Germany, Switzerland and South Korea, was placed in the bi-annual currency watch list in October last year.

While India and Switzerland have not been mentioned in the latest list, the US has added Ireland, Italy, Malaysia, Singapore and Vietnam to the list, with China continuing to figure in it.

 

Implications:

While the designation of a country as a currency manipulator does not immediately attract any penalties, it tends to dent the confidence about a country in the global financial markets.

 

The criterion:

Countries with a current-account surplus equivalent to 2 per cent of gross-domestic product are eligible for the list, according to modifications made in the new list, down from 3 per cent earlier. Other thresholds include repeated intervention in the currency markets and a trade surplus with the US of at least $20 billion.

 

Why is this significant?

  • Tweaks in currency policy has been used by the Trump administration to browbeat countries that, from Washington’s perspective, have hurt American businesses and consumers. For India, this comes amid the ongoing trade spat between Washington and New Delhi.
  • Trump has repeatedly claimed that India is a “tariff king” and imposes “tremendously high” tariffs on American products, while also dismissing as “inadequate” the Indian government’s decision to halve the import tariff on Harley-Davidson motorcycles from 100% to 50% last year, even as he has maintained that his administration is “fixing broken trade deals” to protect American workers.

 

Sources: Indian Express.