Currency Manipulation

By : Neha Dhyani

Updated : Apr 18, 2022, 8:49

Countries practise currency manipulation to make exports cheaper and imports expensive. Currency manipulation is a policy by which countries weaken their currencies to gain trade surpluses. The Covid – 19 Pandemic led to a flow of capital from developing countries to advanced economies, rebelling against currency manipulation.

Currency Manipulation The Department of Treasury of the US Government publishes a semi-annual report to review the global economic developments and exchange rate policies. When a US trade partner' meets the three assessment criteria as explained above, it is labelled as a currency manipulator. The US treasury department defines currency manipulation as the deliberate attempts of trade partner countries to influence the exchange rate between their currencies and the US dollars to gain an "unfair competitive advantage in international trade".

Currency Manipulation List Criteria

The question is, under what circumstances the countries have found a place in the Currency Manipulation. There are three specific conditions fulfilment that makes countries being labelled a currency manipulator by the US Treasury Department. These conditions are mentioned in the Trade Facilitation and Trade Enforcement Act of 2015. They are:-

  1. Countries should maintain a $20 billion-plus surplus bilateral trade with the US.
  2. The foreign currency intervention exceeds 2% of the GDP.
  3. And the global current account surplus is more than 2 % of the GDP.

Once on the Monitoring list, the system is that the economy will continue to be in the report for two consecutive reports to understand that any improvement in terms of the report is durable and not triggered by any temporary factors.

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India is Included in the latest Currency Manipulation

India has been put on the currency manipulator list by the US. Along with Switzerland, Vietnam, Taiwan, and Thailand, India has also been added to the Currency Manipulation. The US suspects these countries are trying to devalue their home currencies against the dollar.

India has met two of the three criteria. India has been named one of the five major trading partners to have intervened in the foreign exchange market in an asymmetrical and sustained pattern, weakening the national currency. India's current account is found to record a surplus of 1.3 per cent of GDP in 2020, thereby marking a shift from the consistent current account deficit recorded since 2004. India's good trade surplus with the US was $24 in 2020. Plus, India was also recorded to have an $ 8billion service trade surplus with the United States in 2020. However, India does not find any logic behind the same.

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Currency Manipulation Impact

There has been a recent resurgence in the rate of currency manipulation, and COVID-19 has played a significant role in the same. There has been a flow of capital to the advanced economies compared to the developing economies and increased trade balances in the advanced economies.

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FAQs on Currency Manipulation List

Q.1. What is a Currency Manipulation?

Ans. The Currency Manipulation is a semi-annual report published by the US Department of Treasury to keep track of the developments in the international economies and review foreign exchange rates.

Q.2. Currency Manipulation is determined by whom?

Ans. The US Treasury Department determines the Currency Manipulation.

Q.3. What Happens on being listed on the Currency Manipulation?

Ans. Although there are no penalties or sanctions, inclusion in the Currency Manipulation affects the global financial image of the listed countries in the financial market concerning their foreign exchange policies.

Q.4. Which other countries apart from India have been listed in the latest Currency Manipulation?

Ans. Apart from India, the other countries mentioned in the Currency Manipulation are China, Korea, Japan, Germany, Ireland, Italy, Thailand, Singapore, and Mexico.

Q.5. What is the status of India in terms of Currency Manipulation?

Ans. India was first added to the list in 2018. Then in 2019, it got removed from the list. However, it was again included in December 2020 on the Currency Manipulation.