Us Removes India: Currency Monitoring List Exit Explained

On November 11, 2022, the US Department of Treasury removed India from its Currency Monitoring List. India had been on the list for two years. The US also removed Italy, Mexico, Thailand, and Vietnam from its Currency Monitoring List. According to the Department of Treasury's biannual report to Congress, the seven economies that form the current Currency Monitoring List are China, Japan, Korea, Germany, Malaysia, Singapore, and Taiwan.

India met only one of three criteria for two consecutive reports

• A significant bilateral trade surplus with the United States, defined as at least a $15 billion goods and services trade surplus.
• A material current account surplus, defined as at least 3% of GDP, or a surplus for which the Treasury estimates there is a material current account "gap" using the Treasury's Global Exchange Rate Assessment Framework (GERAF).
• Persistent, one-sided intervention, defined as repeated net purchases of foreign currency in at least 8 out of 12 months, totalling at least 2% of an economy's GDP over a 12-month period.

Countries are placed on the Currency Monitoring List if they meet two of the three criteria. India only met the first criterion, a significant bilateral trade surplus with the United States. This was likely due to the US Treasury Department's placement of India on a watchlist of currency manipulators in June 2022 because of its significant bilateral trade surplus.

India is an indispensable partner to the US

The United States and India have a long history of relations, which began with India's independence movement and continued well after its independence from the United Kingdom in 1947. Over the years, the two countries have enjoyed close relations and deepened collaboration on issues such as counterterrorism and countering Chinese influence in the Indo-Pacific.

First and foremost, India is a strategic partner to the US in the Indo-Pacific region. The two countries have collaborated to counter the growing influence of China, particularly in the South China Sea and the Indian Ocean. India, with its strong naval presence in the Indian Ocean, can provide a nucleus for maritime security architecture in the region, relieving the burden on the US military. This collaboration is further strengthened by the Quadrilateral Security Dialogue (Quad), which includes the US, India, Japan, and Australia.

Secondly, India is an important economic partner to the US. Bilateral trade between the two countries has been growing, and the US is now India's largest trading partner. In 2021-22, exports to the US from India increased significantly, and the total bilateral trade between the countries crossed $119 billion. The US is also India's largest investment partner, with direct investments totalling $10 billion. American companies have made significant investments in various sectors in India, including power generation, telecommunications, and aerospace.

Thirdly, India and the US have a strong defence partnership. The US has designated India as a "Major Defense Partner" and the two countries conduct regular joint military exercises to enhance interoperability and information exchange. The US has also agreed to provide India with advanced defence technologies, such as the MQ-9B remotely piloted aircraft, and the two countries are working together to develop and produce defence equipment, such as jet engines and unmanned surface vehicles.

Furthermore, India and the US have a history of cooperation in the field of nuclear energy. In 2008, the two countries signed the India-US Civil Nuclear Agreement, which allowed for civil nuclear commerce between the two countries for the first time in 30 years. This agreement was a significant milestone in the bilateral relationship and opened up new opportunities for collaboration in the energy sector.

Additionally, India and the US have collaborated in the field of science and technology through initiatives such as the US-India Science & Technology Forum and the Initiative on Critical and Emerging Technologies (iCET). These initiatives aim to enhance cooperation in areas such as artificial intelligence, quantum computing, biotechnology, and clean energy. The two countries have also established research partnerships between their universities and research institutions, fostering innovation and technological advancement.

Finally, India and the US share a commitment to democracy, freedom, and human rights. Both countries are members of the "Community of Democracies," and they have worked together to promote these values globally. India's commitment to these values, as well as its growing economic and military power, make it an indispensable partner for the US in the 21st century.

India's removal came after Treasury Secretary Janet Yellen's visit to New Delhi

India's removal from the US Currency Monitoring List came just hours after Treasury Secretary Janet Yellen addressed the US-India Businesses and Investment Opportunities event in New Delhi. This was Yellen's fourth visit to India in 10 months, and her first as Treasury Secretary. During her visit, she discussed the strengthening of the global economy, the US's support for India's G20 presidency, and the deepening of the bilateral relationship between the two countries.

Yellen's visit to New Delhi focused on several key areas of cooperation and collaboration between the US and India. Firstly, Yellen emphasised the importance of addressing global economic challenges and maintaining economic support for Ukraine in the face of Russia's unprovoked war. She also highlighted the need to impose severe costs on Russia and mitigate the global impact of the war, such as through the price cap on Russian energy exports.

Secondly, Yellen discussed the US's commitment to evolving multilateral development banks and improving multilateral debt restructuring. This included the IMF's Poverty Reduction and Growth Trust (PRGT) and efforts to address debt distress and provide debt relief for low- and middle-income countries.

Thirdly, Yellen emphasised the strong trade and investment ties between the US and India, which have resulted in bilateral trade reaching an all-time high. She also acknowledged the dynamism of the technology sector in both countries and the mutual dependence between US and Indian companies and consumers.

Finally, Yellen highlighted the shared values and objectives of the US and India as the world's largest democracies, including the need to nurture civil liberties and human rights and cultivate economic vitality through an open, inclusive, and competitive economy. She also stressed the importance of maintaining peace and security in the Indo-Pacific region and tackling global challenges through partnerships such as the Quad and the Indo-Pacific Economic Framework.

India's removal from the Currency Monitoring List is a significant development, and Yellen's visit to New Delhi played a crucial role in strengthening the economic and strategic partnership between the two countries.

India was first added to the list in 2017

India was first added to the US Currency Monitoring List in 2017. The US Department of the Treasury added India to the list for 'questionable foreign exchange policies'. India had stated that it had increased its purchases of foreign exchange over the last three quarters of 2017, although the rupee still rose in value. India's net purchases of foreign exchange in 2017 totalled $56 billion (2.2% of GDP). This 2.2% figure was higher than the 2% cut-off.

India met two of the three criteria laid out for inclusion in the monitoring list. There was a large trade surplus with the US and excessive purchase of dollars. India’s trade surplus with the US in 2017 was $23 billion, higher than the $20 billion benchmark used for assessment. India did not meet the third criterion, which is having a current account surplus of at least 3% of GDP. India’s current account is in deficit.

The US Treasury Department releases a semi-annual report to Congress on international economic and exchange rate policies. The report highlights the currency practices adopted by major trading partners of the US. Once a country is added to the monitoring list, it will remain on it for at least two consecutive reports.

India's overall merchandise exports growth fell sharply in April 2019

On November 11, 2022, the US Department of Treasury removed India from its Currency Monitoring List. This removal came just hours after Treasury Secretary Janet Yellen addressed US-India Businesses and investment Opportunities in New Delhi. Along with India, the US also removed Italy, Mexico, Thailand, and Vietnam from the list.

India's removal from the Currency Monitoring List was a result of the country meeting only one out of three criteria for two consecutive reports. However, despite this improvement, India's overall merchandise exports growth fell sharply in April 2019. This decline can be attributed to a variety of factors, including global economic conditions, trade tensions, and changes in India's domestic policies.

One of the main factors contributing to the decline in India's merchandise exports growth was the slowdown in global demand. The world economy experienced a period of uncertainty and weakness during this time, which led to a decrease in demand for Indian goods and services. Trade tensions between the US and China also played a role, as they disrupted global supply chains and impacted India's ability to access key markets.

Additionally, India's domestic policies underwent significant changes during this period. The implementation of the Goods and Services Tax (GST) in July 2017 aimed to streamline the country's complex tax system. However, the transition period caused some disruptions to business operations, particularly for small and medium-sized enterprises. The demonetization policy, which was introduced in November 2016, also had lasting effects on the economy, impacting cash-dependent sectors such as exports.

The sharp fall in India's overall merchandise exports growth in April 2019 highlighted the challenges faced by the country's economy. While there were multiple factors contributing to this decline, both domestically and internationally, it underscored the need for continued efforts to strengthen India's export sector and its resilience to global economic fluctuations.

Frequently asked questions