India removed from US’s Currency Watchlist

In a recent announcement by United States, it has removed India and Switzerland from the currency monitoring lists. The US has retained other countries like China, Japan and Germany in the list.

Key Highlights

• Background: It was in May 2018 when for the first time India was placed by US in its currency monitoring list of countries with potentially questionable foreign exchange policies, and because India had a bilateral trade surplus with US, which crossed country’s maximum limit of $20 billion. Other five other countries along with India included Japan, China, Switzerland, Germany and South Korea.
• Objective: The list basically consists of major trading partners of US who are to be closely monitored for potentially questionable foreign exchange policies. The move is taken amid escalating trade tensions between the two countries.
• About: In the latest semi-annual report on macroeconomic and foreign exchange (Forex) policies of major trading partners of the US, the country has removed India and Switzerland from the monitoring list. The list now includes other countries like Italy, Japan, Singapore, China, Malaysia, Ireland, Vietnam, Germany and Korea.
• Reasons: US President Donald Trump’s administration cited reason for removal that India has taken certain steps and developments which address some of its major concerns over its currency practices and macroeconomic policies. According to analysis, in year 2018 both India and Switzerland saw a notable decline in the scale and frequency of foreign exchange purchases.
• Criteria: The US includes major trading partners in its monitoring Currency List if they meet at least two of three criteria-

1. If partner country has either a significant bilateral trade surplus with the US.
2. If partner country has a material current account surplus.
3. If partner country is engaged in “persistent one-sided intervention” in foreign exchange (Forex) market.

India-US Recent Trade Relation

• Over the past two years, US has been putting pressure on India by increasing tariffs on products like steel and aluminum, and also removed India from US’s Generalized System of Preferences (GSP), that allowed Indian businesses certain trade benefits.
• India attempts to reduce its trade surplus of over $20 billion with US. In May 2019 India stated that purchasing or imports of larger products like aircraft from US companies (like Boeing) could help offset it going forward. Thus showing a positive effort that at least on one front, India can be reassured that it will not be targeted with unilateral measures over currency issues.

Month: Current Affairs - May, 2019