Currency Monitoring List: India taken off CML, China still on list — What it means? Check US Dept of Treasury's criteria for scrutiny

US currency monitoring list - Story so far: The US Department of Treasury on Friday withdrew India from its list of significant trading partners that warrant rigorous scrutiny of their currency practices and macroeconomic policies, along with Italy, Mexico, Thailand, and Vietnam.

The decision was taken on the same day when Janet Yellen, the secretary of the Treasury, visited New Delhi and spoke with finance minister Nirmala Sitharaman.

What is currency monitoring list?

If a country devalues its currency for unfair competitive advantage, it is placed on the Currency Monitoring List by the US Department of Treasury. This is due to the fact that the country's export expenses will be lower as a result of the currency's depreciation.

Every two years, the US Department of Treasury releases a report that tracks global economic developments and examines currency exchange rates. It also looks at the monetary policies of the 20 largest trading partners of the United States of America.

According to the Department of Treasury's biannual report to US Congress, the seven economies that are now under observation are--China, Japan, Korea, Germany, Malaysia, Singapore, and Taiwan.

What are the three specific criteria of the Currency Monitoring List?

If a country meets two of the three criteria of section 701 of the US Trade Facilitation and Trade Enforcement Act of 2015, it gets added to the Currency Monitoring List.

1. Sizable bilateral trade surplus with the US:

A trade surplus of at least $15 billion in goods and services qualifies as a considerable bilateral trade surplus with the US.

2. A significant surplus in the current account:

A sizable current account surplus over a year that is at least equal to 3% of GDP.

3. Persistent, one-sided intervention:

'Persistent' One-sided intervention occurs when net purchases of foreign currency amounting to at least 2% of the nation's GDP are made frequently, in at least six out of the year's twelve months.

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Why India removed from US' currency monitoring list?

India was taken off the monitoring list after nearly two years, since it only satisfied one of the criteria for two consecutive reports.

However, China's failure to publish foreign exchange intervention and broader lack of transparency around key features of its exchange rate mechanism makes it an outlier among major economies and warrants Treasury's close monitoring, said the US November Treasury report.

According to Treasury Secretary Yellen, the global economy was already dealing with supply and demand imbalances brought on by COVID-19 before Russia's war against Ukraine, which has increased the price of food, fertiliser, and energy, further driving up global inflation and escalating food insecurity.

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