Understanding the US Currency Manipulation List: Why India Was Added to the Monitoring List

The concept of currency manipulation is rooted in trade dynamics where one country deliberately lowers its currency value to gain a competitive edge in international trade. If the value of the currency of Country B decreases relative to Country A, it means one unit of Country A's currency can buy more goods or services from Country B, making imports cheaper. This shift often leads to a trade imbalance favoring Country B, but the natural flow of trade usually corrects this imbalance by raising the value of Country B's currency.

However, when Country B consistently sells its currency and buys Country A's currency, it can artificially keep its currency value low, making its exports cheaper and hampering fair trade. This can benefit Country B temporarily, but ultimately, this strategy undermines the global economy's stability and the economic health of Country A.

Historical Context and Recent Developments

In the past, the United States had a unique position due to its production capabilities and the global demand for its products. It held significant amounts of gold and foreign currencies, allowing other countries to hoard USD. As international markets opened up through initiatives like the WTO, US companies found it cheaper to produce abroad and sell back to the US, leading to an excess of USD and devalued foreign currencies.

US companies often sold the currencies of their investment countries back to the US, reducing the competition they faced. This strategy resulted in a surplus of USD in US banks and a drop in domestic production, leading to job losses despite a large USD surplus. The US government's intervention to address these issues faced resistance from multinational corporations, leading to the era of self-governed multinationals.

The US Treasury's Monitoring List

The US Treasury has established a Monitoring List under the Trade Facilitation and Trade Enforcement Act of 2015. The US can add countries to this list if they consistently sell their currencies and buy USD, and they meet certain criteria. Specifically, a country must:

Persistently sell their currency and buy USD in the international foreign exchange market Purchase USD repeatedly during six out of the last 12 months Total net purchases amount to at least two percent of the country's GDP over the 12-month period considered

The US Treasury can also add a country to the list if it is a significant US trading partner with a large and disproportionate share of the US trade deficit. The threshold limit for a trade deficit in any 12-month period is $20 billion.

India's Inclusion on the Monitoring List

India was added to the Monitoring List despite raising eyebrows due to its purchases of USD and trade surplus. From June 2019 to June 2020, India purchased approximately $64 billion in the world currency market, accounting for nearly 2.4% of India's GDP at that time. Further, India's substantial trade surplus of $22 billion was primarily due to exports of essential goods to the US related to fighting the COVID-19 pandemic, which the US could not supply.

The US inclusion of India on the Monitoring List, therefore, appears to lack proper application of its criteria. India's purchases of USD were aimed at supporting the import of raw materials for vaccine production and accessories, which are crucial for combating the pandemic. Moreover, the trade surplus with the US during this period was largely due to exports for minimal profits.

This situation raises several questions about the US's approach to identifying and addressing currency manipulation. It highlights the importance of considering the broader context and the real-world implications of economic policies, especially when it comes to sensitive issues like public health.

In conclusion, while the principle of monitoring currency manipulation is valid, the application needs to be more nuanced and consider the specific circumstances of each nation. The case of India on the Monitoring List serves as a reminder of the complexities involved in global trade and the need for a more balanced and holistic approach in such economic policies.