US Puts India on Currency Watchlist

  • IASbaba
  • December 18, 2020
  • 0
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US Puts India on Currency Watchlist

Part of: GS Prelims and GS-II – International Relations & GS-III – Economy

In news

  • Recently, the US treasury has placed India on its currency manipulator watch list.
  • Vietnam and Switzerland have been labelled as currency manipulators.

Key takeaways

  • USA lists those countries which it feels are engaging in unfair currency practices by deliberately devaluing their currency against the dollar.
  • The US Department of Treasury releases the semi-annual report where it has to track developments in international economies and inspect foreign exchange rates.
  • Lowering the value of its currency provides an unfair advantage to that particular country 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.
  • A country which meets two of the three criteria of the Trade Facilitation and Trade Enforcement Act of 2015 is placed on the Watch List. This includes: (1) A significant bilateral trade surplus with the US which is at least USD 20 billion over a 12-month period; (2) A material current account surplus equivalent to at least 2% of GDP over a 12-month period; (3) Persistent one-sided in at least six out of 12 months.
  • Inclusion in the list does not subject to any kind of penalty and sanctions but it deteriorates the global financial image of the country.

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