Recently, Indian currency has been added among a list of nations' whose foreign exchanges policies are on close radar of the US treasury. And India now holds a position as a nation on the watch-list for currency manipulation. So how critical is the country's featuring in the list, shall be discussed hereforth.
So why such a move and how will it impact our currency Indian Rupee and economy at large?
First we need to understand the term which is a monetary policy influencing the currency (domestic) by buying in forex in order to promote one's nations trade and hence deter other nations economy.
The US considers a host of three factors for including a country in its watch-list
1. If the nation has excessive trade surplus with the US. In the year 2017, India had reported a trade surplus of $23 billion which is the highest on record.
2. Current account situation of the nation is in surplus but India does not qualifies for this criteria as it is in a consistent deficit condition. In the qtr ended December 2017, the country's CAD stood at $13.48 billion.
3. If the country is found to interfere in its foreign exchange policies to a greater extent such that to promote its own interest. The criteria for the same is if the country consistently buys forex using its domestic currency which totals higher of 2% of its GDP over 12 months time.
Here, the US has accounted for the net purchase of forex and in light of which the country meets the stipulated criteria.
Other countries in the watch-list of currency manipulator include China, Japan, Germany, South Korea and Switzerland.
Included in the watch-list and labeled as Currency manipulator
It is noteworthy to make point of the fact that India has only been included in the watch-list such that its move shall be on a higher vigilance from now on and so the situation is not as critical.
Nonetheless, the move and the report can be a deterrent to RBI who is taking all possible measures to curb the currency from appreciating and hence to promote financial stability. So, this is the implied threat by the US which both the central government and RBI now pay heed to before any big step in its foreign exchange or economic policies.