US puts India into ‘Currency Manipulator’ Watchlist

The United States (U.S.) Treasury Department has published its semi-annual report on “macroeconomic and foreign exchange policies for major trading partners”. In the report, India has been put on the watchlist of countries being monitored for currency manipulation.

Why this has been done?

US put India into currency manipulation watchlist after the Indian central bank stepped up the purchases of foreign currency. The central bank has stepped up the purchases after the portfolio flows surged in the second half of the year.

US’s Benchmark for Currency Manipulators

The U.S. Treasury make use of following three benchmarks so as to judge the currency manipulators:

  1. Bilateral trade surplus with the U.S. of about more than $20 billion.
  2. Current account surplus of at least 3% of GDP.
  3. Net purchases of foreign currency of 2% of GDP in a 12-month period.

How India was judged?

US alleges that, India has breached the first and the third benchmarks. However, regarding the second benchmark, India’s current account surplus has remained below the threshold level in the four quarters. India has also maintained bilateral goods trade surplus with the United States. The bilateral trade stood at $22 billion in the four quarters up to June 2020. The report further highlighted that the net purchases of foreign currency was increased up to 2.4% of Gross Domestic Product (GDP).  Though the US department acknowledged the Reserve Bank of India’s (RBI) transparency while publishing data on intervention. But it called the RBI to allow the rupee to adjust on the basis of fundamentals.