Why does the US keep putting pressure with such Currency Manipulator tag? What should India’s response be to such constant threats coming from the US?

To cut a long story short, this is more like strong arming or arm twisting tactics employed by the US considering its size and influence in the global trade situation. Even in the past, the US has used this Currency Manipulator list conveniently as a pressure tactic to force many of the smaller countries to reduce their trade surplus with the US. However, this is flawed.

The reason I say this approach is flawed because the dollar is not strong because any of the smaller countries are running a trade surplus with the US and deliberately keeping the US dollar strong. In fact, the dollar is strong as because of the exorbitant privilege of being the default currency for global trade, financial investments and commerce.

There is the irony. That is a privilege the US has accepted knowing fully-well that it would keep the US dollar stronger than warranted. The US needs to keep the dollar strong to remain a preferred currency. The weak strong dollar is an outcome of the situation created by the US and not by any other country that is currently running a surplus with the US.

However, India must not miss a larger point here. India must take a cue on how it can gradually make the INR fully convertible in the capital and current account. This process started in 1997 but never progressed too far. India continues to manage the rupee in a system of free float, which is somewhere in between freedom and regulation.

For a long time, RBI has intervened to prevent the rupee from getting too strong as it would impact exports. This is becoming a major issue only because India runs a fairly huge trade surplus with the US. Hence, such interventions by the central banks of countries like India are likely to come under the microscope. That is bound to happen.

It is time to bite the bullet and take the first step to making INR a true-blue hard currency! Today, for its size, the INR is hardly treated as a convertible currency. Smaller economies like Australia and Canada have had the tag of hard currencies for ages. India must use this US ploy to actually initiate much needed currency shifts.