Prelims level : Economics Mains level : GS- III Technology, Economic development and Environment
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Why in News:

  • The US removed India from its currency monitoring list of major trading partners, citing steps being taken by New Delhi that addressed some of the Donald Trump administration’s major concerns.


  • The watch list contains the names of countries that have potentially questionable foreign exchange policies and are suspected to be manipulating their currencies to gain trade advantages over the US. India was placed on watchlist in May 2018 along with China, Japan, Germany, Switzerland and South Korea.
  • Apart from India, Switzerland was dropped from the list. In its biannual foreign-exchange report to the Congress, the US Treasury Department added Ireland, Italy, Malaysia, Singapore and Vietnam to the list.
  • US trade department in its October Report highlight that India’s circumstances have shifted markedly, as the central bank’s net sales of foreign exchange over the first six months of 2018 led net purchases over the four quarters through June 2018 to fall to USD 4 billion, or 0.2 per cent of the GDP. This led removal of India from currency watch list

What is currency manipulation

  • The US Department of the Treasury publishes a semi-annual report in which the developments in global economic and exchange rate policies are reviewed.
  • If a US trade partner meets three assessment criteria, the US labels it a currency manipulator. The three pre-conditions for being named currency manipulator are: a trade surplus of over $20 billion with the US, a current account deficit surplus of 3% of the GDP, and persistent foreign exchange purchases of 2% plus of the GDP over 12 months.
  • A country can intentionally undervalue its currency by selling its own currency to drive down its value, making its exports cheaper and more competitive.
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