PHOTO BY: US Department of Treasury
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Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States

Washington, DC – This Trump administration released its latest report on trade partners’ currency practices this week. Relying on reporting criteria created by the previous administrations, there are no glaring changes in the report which is a semi-annual ritual mandated by the US Congress to identify countries that distort currency values to gain trade advantages. No changes come even though candidate Donald Trump had pledged to crack down on countries that gain trade advantages by distorting currency values.

In its Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, the US promised that based on certain conditions, “at the time of its next Report, Treasury would remove India from the Monitoring List.”

Explaining the three conditions, the report noted that India’s circumstances “shifted markedly, as the central bank’s net sales of foreign exchange over the first six months of 2018 led net purchases over the four quarters through June 2018 to fall to $4 billion, or 0.2 percent of GDP.” On the basis of this the report noted a “notable change from 2017, when purchases over the first three quarters of the year pushed net purchases of foreign exchange above 2 percent of GDP.”

Foreign Exchange Reserves Report Tavle 1

Secondly, recent sales have come amidst a turnaround in foreign portfolio flows, as foreign investors pulled portfolio capital out of India (and many other emerging markets) over the first half of the year. The rupee depreciated by around 7 percent against the dollar and by more than 4 percent on a real effective basis in the first half of 2018. India has a significant bilateral goods trade surplus with the United States, totaling $23 billion over the four quarters through June 2018.

Citing the recent analysis from the International Monetary Fund (IMF), the report quoted, “the IMF assessed the real effective exchange rate to be in line with economic fundamentals,” adding that the RBI’s (Reserve Bank of India) most recent annual report assessed the rupee to be “closely aligned to its fair value over the long term.”

India Current Account Balance Report 2

The report, however pointed at India’s current account which is in deficit at 1.9 percent of GDP. As a result, India now only meets one of the three criteria from the 2015 Act. “If this remains the case at the time of its next report, Treasury would remove India from the Monitoring List,” the report noted in its executive summary.

This is the first time India was placed by the US in its currency monitoring list of countries with potentially questionable foreign exchange policies in April along with five other countries — China, Germany, Japan, South Korea and Switzerland.

The report concluded that while the currency practices of six countries “require close attention”, no major US trading partner currently met the 2015 legislative criteria for enhanced analysis.


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