From UPSC perspective, the following things are important :
Prelims level : Currency watchlist
Mains level : Paper 3-Currency watchlist of the US and RBI's role
Why was India put on the currency watchlist by the US
- The U.S. Treasury Department had recently retained India in a watchlist for currency manipulators submitted to the U.S. Congress.
- It cited higher dollar purchases (close to 5% of the gross domestic product) by the Reserve Bank of India (RBI).
- Another trigger for the inclusion in the currency watchlist is a trade surplus of $20 billion or more.
What is India’s position
- India had a steady holding pattern of forex reserves ‘with ups and downs’ based on market-based transactions that central banks may undertake.
- The central bank’s activity in the foreign exchange market has been perfectly balanced and completely legitimate within the accepted monetary policy mandate of central banks across the world.
- It is a mandate of the central bank to provide stability in the currency as a result of which central banks buy and sell foreign currency.
- Our overall reserves have been fairly steady at $500 bn to $600 bn.
- We are not accumulating reserves like China.