Currency Manipulator

The term Currency Manipulator is used by the United States of America (USA). It designates countries as Currency Manipulators, which is engaged in unfair currency practices. Designation as a currency manipulator means the country is artificially lowering the value of its currency to gain an unfair advantage over others.

Key Points for UPSC Prelims

  • When the USA is of the opinion that the monetary/fiscal policies of a nation are derogatory to the international trade and gives the nation unfair trade advantage, then the USA would designate them as Currency Manipulators and would impose sanctions.
  • Such practices may involve currency intervention, arbitrary fixation of the exchange rate, excessive purchase of foreign currency by a central bank with the intention to reduce the exchange rate.
  • To be designated as a manipulator by the U.S. Treasury, nations must at least have foreign currency intervention exceeding 2% of gross domestic product, a $20 billion-plus bilateral trade surplus with the U.S., and a global current account surplus exceeding 2% of GDP.

USA puts India on Currency Manipulator Monitoring list

  • Recently, the US Department of the Treasury Office of International Affairs has put India in Currency Manipulator Monitoring List while naming Switzerland and Vietnam as Currency Manipulators in the US treasury department’s list.
  • In 2020, the Reserve Bank of India has purchased $57 billion just in the spot market and had made purchases of $12.6 billion through forwarding contracts.
  • With the additions of India, Taiwan, and Thailand, the number of countries on the “monitoring list” of currency manipulators has reached 10. Other countries on the list are Germany, China, Korea, Japan, Italy, Malaysia, and Singapore.

Why is India on the list?

As per the latest report, the bilateral goods trade surplus of India with the US has crossed the $20 billion mark. The bilateral goods trade surplus was $22 billion in the first four quarters through June 2020.

Based on the intervention data of the central bank, India’s net purchases of foreign exchange increased notably in the 2nd half of 2019. Due to sales during the initial onset of the pandemic, India sustained net purchases for much of the first half of 2020 that increased the net purchases of foreign exchange to $64 billion– or 2.4% of GDP–over the four quarters through June 2020.

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