Currency manipulator Status

Why in news?

• The United States has once again included India in its monitoring list of countries with potentially “questionable foreign exchange policies” and “currency manipulation”.
• This comes a year after India was removed from the watchlist in the US Treasury Department’s semi-annual foreign-exchange report to the US Congress.

What does the term ‘currency manipulator’ mean?

• This is a label given by the US government to countries it feels are engaging in “unfair currency practices” by deliberately devaluing their currency against the dollar.
• The practice would mean that the country in question is artificially lowering the value of its currency to gain an unfair advantage over others.
• This is because the devaluation would reduce the cost of exports from that country and artificially show a reduction in trade deficits as a result.

What are the parameters used?

• An economy meeting two of the three criteria in the Trade Facilitation and Trade Enforcement Act of 2015 is placed on the Monitoring List. This includes:
  • A “significant” bilateral trade surplus with the US — one that is at least $20 billion over a 12-month period.
  • A material current account surplus equivalent to at least 2 percent of gross domestic product (GDP) over a 12-month period.
  • “Persistent”, one-sided intervention — when net purchases of foreign currency totalling at least 2 percent of the country’s GDP over a 12-month period are conducted repeatedly, in at least six out of 12 months.
• Other countries in the latest list comprise China, Japan, Korea, Germany, Italy, Singapore, Malaysia, Taiwan and Thailand.
• The designation of a country as a currency manipulator does not immediately attract any penalties,  but tends to dent the confidence about a country in the global financial markets.

Prelims Question

Consider the following statements: 
1.Viewed on an annual basis, India had a trade surplus with both USA and UAE in the last financial year.
2.China holds the largest foreign exchange reserve in the world.
Which among the above statements is/are correct?
(a)1 only 
(b)2 only 
(c)Both 1 and 2
(d)Neither 1 nor 2

Answer to prelims question