Updated Mar 09, 2022

What is a currency Manipulator watchlist?

What is a currency Manipulator watchlist?



After being removed from the US Treasury Department's Currency Manipulation Watchlist for a year, India was reinstated in December 2020. Switzerland, Japan, Germany, and other countries are also represented.



What is a Currency manipulator?


Currency manipulator is a term used by US government authorities, such as the US Department of the Treasury, to describe countries that engage in "unfair currency practices" that provide them a trade advantage. Money intervention or monetary policies are examples of such actions, in which a central bank buys or sells foreign currency in exchange for domestic currency, to affect the exchange rate and commercial policy. Policymakers may intervene in the currency market for a variety of reasons, including controlling inflation, maintaining international competitiveness, or ensuring financial stability.

In many circumstances, the central bank weakens its currency to subsidize exports while raising import prices, sometimes by as much as 30-40%, and this is a kind of protectionism. Currency manipulation is not always easy to detect, and some individuals believe that quantitative easing is a sort of currency manipulation.


The United States Secretary of the Treasury is needed by the 1988 Omnibus Foreign Trade and Competitiveness Act to "analyze every year the exchange rate policies of foreign nations... and recognize regardless of whether countries manipulate the exchange rate between their currency and the United States dollar for goals of controlling the effective balance of payments adjustments or acquiring unfair competitive benefit in international trade," and that "If the Secretary considers If such manipulation occurs with relation to countries that contain material global current account surpluses and important bilateral trade surpluses with the United States, the Secretary of the Treasury shall take immediate action to speed up negotiations with such foreign nations, either through the International Monetary Fund or bilaterally, to ensure that such countries frequently and quickly adjust the rate of exchange between their currencies.



What is the Currency Manipulation Watchlist?


The Currency Manipulation Watchlist includes countries that the US Treasury believes are participating in "unfair currency practices" that provide them an edge in trade.


Currency interventions or monetary policies in which a central bank buys or sells foreign currency in return for domestic currency, usually to influence foreign exchange rates or commercial policies, are examples of such actions. Another motive is to keep inflation under control and financial stability intact.

The labeling of a country as a currency manipulator does not immediately result in penalties, but it tends to erode a country's credibility in global financial markets.


It should be emphasized that currency manipulation is not always easy to detect, and some individuals believe that quantitative easing is a sort of currency manipulation.



Parameters used to add to the list of Currency Manipulation


The Monitoring List includes economies that meet two of the three criteria outlined in the Trade Facilitation and Trade Enforcement Act of 2015. 

The following are the criteria for including a country on the list:


• A significant bilateral trade surplus of at least $20 billion over a year.


• A current account surplus of at least 2% of total GDP (Gross Domestic Product). On the given link, you may learn more about India's GDP in depth.


• One-sided intervention by central bank authorities in which net purchases of foreign currency worth at least 2% of GDP are done regularly over 12 months.


If a country is placed on the Currency Manipulation Watchlist, it will be barred from receiving US Government procurement contracts, causing considerable harm to the country's global financial reputation.



Countries in the Currency Manipulation Watchlist

The following nations have been added to the Currency Manipulation Watchlist as of December 2020, based on at least two of the required criteria established by the US Department of Treasury:


  • China
  • Germany
  • Japan
  • India
  • Italy
  • Malaysia
  • Switzerland
  • South Korea
  • Taiwan
  • Thailand
  • Singapore
  • Vietnam



The United States has kept India on its list of currency manipulators.


Now that India has been added to the watchlist, the Reserve Bank of India is expected to reduce its persistent dollar purchases. This, in turn, will lead to an increase in the value of the Indian rupee in the coming months. A stronger rupee will also somewhat offset the impact of increased oil costs on imports.

According to a US Treasury Department study, India, which has for long years maintained a bilateral trade surplus that has beyond the $20 billion mark, has accelerated its net purchases in the second half of 2019. When the COVID-19 Pandemic struck in the first half of 2020, net foreign exchange acquisitions were USD 64 billion.


The US Treasury Department (USDT) has kept India on its list of currency manipulators, along with other countries. India, widely seen as a strategic ally of the United States in the Asia Pacific, has been on the list for the second time in a row.


India was first included on the list in December 2018 but was deleted in 2019 before reappearing in December 2020. The countries on the currency manipulator watch list are suspected of meddling in their foreign exchange (forex) markets to acquire an unfair trade advantage.


What does the USDT have to say about India?


According to the US Treasury study, India is one of the country's five largest trading partners that "intervened in the foreign currency market in a persistent, asymmetric manner, with the impact of weakening their currencies."


"Around the four quarters leading up to December 2020, five major US trading partners— Vietnam, Switzerland, Taiwan, India, and Singapore — interfered in the foreign exchange market in a continuous, asymmetric manner, weakening their currencies," according to the research issued on April 16.


When the RBI consistently intervenes in both directions," the study went on to say, "the RBI acquired foreign exchange on the net in 11 of the 12 months of 2020, with net intervention totaling 131 billion, or 5% of GDP."

India's current account surplus of 1.3 percent of GDP in 2020 marked a turnaround from the persistent current account deficits on record since 2004, according to the US Treasury Department, in addition to India's 24 billion goods trade surplus with the US in 2020.


According to the research, India had an 8 billion services trade surplus with the United States in 2020.



India's reaction


According to a Reuter article quoting a commerce ministry official, New Delhi sees no rationale in the United States placing India on a watch list of currency manipulators. This is will enhance the future of the banking system and collateral banking system that will contribute to the product of economic conditions of the country.



The countries on the currency manipulator watch list, are suspected of meddling in their foreign exchange (forex) markets to acquire an unfair trade advantage. The US Treasury Department places a trading partner on the watchlist if that country intervened in the currency market by more than 2% of its GDP in the previous 12 months, had a current account surplus of 2% of GDP, and a trade surplus with the US.

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