R E P ORT T O C O N G R E S S

U.S. DEPARTMENT OF THE TREASURY • OFFICE OF INTERNATIONAL AFFAIRS

June 2022
Contents

EXECUTIVE SUMMARY .......................................................................................................... 1

SECTION 1: GLOBAL ECONOMIC AND EXTERNAL DEVELOPMENTS..................... 6

U.S. ECONOMIC TRENDS.............................................................................................................. 6

ECONOMIC DEVELOPMENTS IN SELECTED MAJOR TRADING PARTNERS .................................... 18

IN-DEPTH ANALYSIS.................................................................................................................. 42

ENHANCED ANALYSIS UNDER THE 2015 ACT............................................................................ 47

SECTION 2: INTENSIFIED EVALUATION OF MAJOR TRADING PARTNERS ........ 52

KEY CRITERIA ........................................................................................................................... 52

TRANSPARENCY OF FOREIGN EXCHANGE POLICIES AND PRACTICES ......................................... 57

SUMMARY OF FINDINGS............................................................................................................. 59

ANNEX 1: DEVELOPMENTS IN GLOBAL IMBALANCES.............................................. 62

GLOSSARY OF KEY TERMS IN THE REPORT................................................................. 65

This Report reviews developments in international economic and exchange rate policies

and is submitted pursuant to the Omnibus Trade and Competitiveness Act of 1988, 22

U.S.C. § 5305, and Section 701 of the Trade Facilitation and Trade Enforcement Act of 2015,

19 U.S.C. § 4421.1

1 The Treasury Department has consulted with the Board of Governors of the Federal Reserve System and

International Monetary Fund management and staff in preparing this Report.
1

Executive Summary

Following a steep contraction of the global economy in 2020 due to the impact of COVID19, recovery began to take hold in 2021, and has been most pronounced in economies that

undertook strong macroeconomic policy support and where a larger share of the

population has been vaccinated. In 2022, however, Russia’s unprovoked and unjustifiable

war against Ukraine has upended the global outlook. Most importantly, Russia’s war is

having a devastating human toll, from lives lost, to families displaced internally or

becoming refugees. It is also imperiling the global recovery through supply disruptions

and rising commodity prices, as well as increasing food insecurity and inequality. The IMF

projects global growth to slow from an estimated 6.1% in 2021 to 3.6% in both 2022 and

2023, which is 0.8 and 0.2 percentage points lower for 2022 and 2023 than the IMF’s

projections in January 2022. 

Countries will experience varying degrees of spillovers from the war depending on the

breadth and depth of their economic ties with Russia and Ukraine, reliance on net imported

commodities, and pre-war macroeconomic policies and vulnerabilities. Macroeconomic

policy responses should therefore be carefully calibrated. Countries most affected by the

war should redeploy targeted fiscal support to protect the most vulnerable, while net

commodity exporters should build fiscal buffers during the upswing in prices and

investment in economic diversification where appropriate. Meanwhile, the COVID-19

pandemic is not yet behind us and actions to support the global rollout and distribution of

vaccines are vital to minimize the divergence in growth that has started to take place. An

uneven global recovery is not a resilient recovery. It intensifies inequality, exacerbates

global imbalances, and heightens risks to the global economy. 

Growth and monetary outlooks have diverged against the backdrop of the war, the

pandemic, as well as rising, broad based inflationary pressures. These combined factors

have impacted major currencies since the beginning of 2022. The dollar strengthened

against most major trading partners’ currencies during this period, reflecting strong U.S.

growth and rising interest rate differentials. In particular, the nominal trade-weighted

dollar had appreciated roughly 5% in the year through mid-May, though it has retraced

somewhat since. The Japanese yen depreciated roughly 11% against the dollar over this

period, largely due to widening interest rate differentials as the Bank of Japan has

maintained its highly accommodative stance that includes yield curve control measures. 

Additionally, the Chinese renminbi depreciated sharply in mid-April 2022, weakening

about 6% against the dollar between end-2021 and mid-May amid portfolio capital

outflows, a darkening growth outlook, and a growing divergence in expectations for

monetary policy between China and the United States. Meanwhile, the euro has gradually

depreciated since March as Russia’s war against Ukraine has impacted the energy

landscape and raised concerns about economic activity, weakening about 8% against the

dollar since end-2021.

After being roughly stable over the past several years, global current account imbalances —

the sum of current account surpluses and deficits globally — widened due to the trade

distortions associated with the COVID-19 pandemic. The IMF April 2022 World Economic
2

Outlook (WEO) indicates that, at the global level, current account surpluses widened for the

second consecutive year to 1.9% of world GDP in 2021, up 0.1 percentage points from

2020. The IMF estimates that global imbalances widened further in 2021 largely because

of ongoing pandemic-related factors and elevated oil prices. The IMF expects current

account balances to remain elevated in the near term though the future path is subject to

uncertainty surrounding the pandemic, the war, and high commodity prices. Among major

U.S. trading partners, the very large surpluses of Germany, Korea, Ireland, Taiwan,

Netherlands, and Singapore have each remained significant as a share of GDP in 2021. Over

the four quarters through December 2021, Japan’s current account surplus was slightly

smaller than in 2020 as a share of GDP, but in dollar terms was comparatively high at $141

billion. China’s surplus was even higher in dollar terms at $317 billion over the same

period, remaining at elevated levels. Meanwhile, a strong U.S. policy response to the

COVID-19 pandemic, and the resulting pick-up in demand, caused the U.S. current account

deficit to rise to 3.6% of GDP in 2021. In general, and especially at a time of recovering

global growth, adjustments to reduce excessive imbalances should occur through a

symmetric rebalancing process that sustains global growth momentum rather than

through asymmetric compression of demand in deficit economies — the channel which too

often has dominated in the past. 

The Biden Administration strongly opposes attempts by the United States’ trading partners

to artificially manipulate currency values to gain unfair advantage over American workers. 

Treasury remains concerned by certain economies raising the scale and persistence of

foreign exchange intervention to resist appreciation of their currencies in line with

economic fundamentals. Treasury continues to press other economies to uphold the

exchange rate commitments they have made in the G-20, the G-7, and at the IMF. All G-20

members have agreed that strong fundamentals and sound policies are essential to the

stability of the international monetary system.2 All IMF members have committed to avoid

manipulating their exchange rates to gain an unfair competitive advantage over other

members. 

Nevertheless, certain economies have conducted foreign exchange market intervention in a

persistent, one-sided manner. Over the four quarters through December 2021, two major

U.S. trading partners — Singapore and Switzerland — intervened in the foreign exchange

market in a sustained, asymmetric manner to limit upward pressure on their currencies. 

Treasury Analysis Under the 1988 and 2015 Legislation

This Report assesses developments in international economic and exchange rate policies

over the four quarters through December 2021. The analysis in this Report is guided by

Section 3001-3006 of the Omnibus Trade and Competitiveness Act of 1988 (1988 Act) and

Sections 701 and 702 of the Trade Facilitation and Trade Enforcement Act of 2015 (2015

Act) as discussed in Section 2. 

2 For a list of further commitments, see the April 2021 Report on Macroeconomic and Exchange Rate Policies

of Major Trading Partners. Available at:

https://home.treasury.gov/system/files/206/April_2021_FX_Report_FINAL.pdf.
3

Under the 2015 Act, Treasury is required to assess the macroeconomic and exchange rate

policies of major trading partners of the United States for three specific criteria. Treasury

sets the benchmark and threshold for determining which countries are major trading

partners, as well as the thresholds for the three specific criteria in the 2015 Act. 

In this Report, Treasury has reviewed the 20 largest U.S. trading partners3 against the

thresholds Treasury has established for the three criteria in the 2015 Act:

(1) A significant bilateral trade surplus with the United States is a goods and services

trade surplus that is at least $15 billion. 

(2) A material current account surplus is one that is at least 3% of GDP, or a surplus for

which Treasury estimates there is a current account “gap” of at least 1 percentage point

of GDP using Treasury’s Global Exchange Rate Assessment Framework (GERAF). 

Current account gaps are defined in this Report as the deviation of a given current

account balance — stripping out cyclical factors — from an estimated optimal current

account balance given the economy’s economic fundamentals and the appropriate mix

of macroeconomic policies. 

(3) Persistent, one-sided intervention occurs when net purchases of foreign currency

are conducted repeatedly, in at least 8 out of 12 months, and these net purchases total

at least 2% of an economy’s GDP over a 12-month period.4 

In accordance with the 1988 Act, Treasury has also evaluated in this Report whether

trading partners have manipulated the rate of exchange between their currency and the

United States dollar for purposes of preventing effective balance of payments adjustments

or gaining unfair competitive advantage in international trade.

Because the standards in the 1988 Act and the 2015 Act are distinct, a trading partner

could be found to meet the standards identified in one of the statutes without necessarily

being found to meet the standards identified in the other. Section 2 provides further

discussion of the distinctions between the 1988 Act and the 2015 Act.

Treasury Conclusions Related to the 2015 Act

Switzerland has exceeded the thresholds for all three criteria over the four quarters

through December 2021, and therefore Treasury is conducting enhanced analysis of

Switzerland’s macroeconomic and exchange rate policies in this Report. Switzerland had

previously exceeded the thresholds for only two of the three criteria under the 2015 Act

over the four quarters through June 2021 as noted in the December 2021 Report, in which

Treasury conducted an in-depth analysis of Switzerland. Previous to that, Switzerland

exceeded the thresholds for all three criteria under the 2015 Act, as noted in the April 2021

and December 2020 Reports, in each of which Treasury conducted an enhanced analysis of

Switzerland. Since Switzerland has again exceeded the thresholds for all three criteria,

3 Based on total bilateral trade in goods and services (i.e., imports plus exports).

4 These quantitative thresholds for the scale and persistence of intervention are considered sufficient on their

own to meet the criterion. Other patterns of intervention, with lesser amounts or less frequent interventions,

might also meet the criterion depending on the circumstances of the intervention.
4

Treasury will continue its enhanced bilateral engagement with Switzerland, which

commenced in early 2021, to discuss the Swiss authorities’ policy options to address the

underlying causes of its external imbalances.

Both Vietnam and Taiwan exceeded the thresholds of fewer than three criteria over the

four quarters through December 2021. Vietnam had previously exceeded the thresholds

for all three criteria as noted in the December 2021, April 2021, and December 2020

Reports, in each of which Treasury conducted enhanced analysis of Vietnam. Taiwan had

previously exceeded the thresholds for all three criteria as noted in the December 2021

and April 2021 Reports, in each of which Treasury conducted enhanced analysis of Taiwan. 

Though Vietnam and Taiwan no longer meet all three criteria for enhanced analysis,

Treasury will continue to conduct an in-depth analysis of these economies’ macroeconomic

and exchange rate policies until they do not meet all three criteria under the 2015 Act for at

least two consecutive Reports. 

 

In early 2021, Treasury commenced enhanced bilateral engagement with Vietnam in

accordance with the 2015 Act. As a result of discussions through the enhanced

engagement process, Treasury and the State Bank of Vietnam (SBV) reached agreement in

July 2021 to address Treasury’s concerns about Vietnam’s currency practices.

5 Treasury

continues to engage closely with the SBV to monitor Vietnam’s progress in addressing

Treasury’s concerns and is thus far satisfied with progress made by Vietnam.

In May 2021, Treasury commenced enhanced bilateral engagement with Taiwan in

accordance with the 2015 Act. These productive discussions have helped develop a

common understanding of the policy issues related to Treasury’s concerns about Taiwan’s

currency practices. Treasury continues to engage closely with Taiwan’s authorities.

Treasury Assessments of Other Major Trading Partners

Treasury has found in this Report that no major trading partner other than Switzerland

met all three criteria under the 2015 Act during the four quarters ending December 2021. 

Treasury has also established a Monitoring List of major trading partners that merit close

attention to their currency practices and macroeconomic policies. An economy meeting

two of the three criteria in the 2015 Act is placed on the Monitoring List. Once on the

Monitoring List, an economy will remain there for at least two consecutive Reports to help

ensure that any improvement in performance versus the criteria is durable and is not due

to temporary factors. As a further measure, Treasury will add and retain on the Monitoring

List any major U.S. trading partner that accounts for a large and disproportionate share of

the overall U.S. trade deficit even if that economy has not met two of the three criteria from

the 2015 Act. In this Report, the Monitoring List comprises China, Japan, Korea,

Germany, Italy, India, Malaysia, Singapore, Thailand, Taiwan, Vietnam, and Mexico.

5 See “Joint Statement from the U.S. Department of the Treasury and the State Bank of Vietnam.” Available at: 

https://home.treasury.gov/news/press-releases/jy0280.
5

All except Taiwan and Vietnam (which were subject to enhanced engagement) were

on the Monitoring List in the December 2021 Report.

Ireland has been removed from the Monitoring List in this Report, having met only one out

of three criteria – a material current account surplus – for two consecutive Reports.

China’s economy faces downside risks, primarily due to a surge in COVID-19 cases in early

2022 that has led to an acceleration of lockdowns of major cities and generated further

uncertainty and supply chain disruptions. China’s failure to publish foreign exchange

intervention and broader lack of transparency around key features of its exchange rate

mechanism make it an outlier among major economies, and the activities of China’s stateowned banks in particular warrant Treasury’s close monitoring.

Treasury Conclusions Related to the 1988 Act

The 1988 Act requires Treasury to consider whether any economy manipulates the rate of

exchange between its currency and the U.S. dollar for purposes of preventing effective

balance of payments adjustments or gaining unfair competitive advantage in international

trade. In this Report, Treasury has concluded that no major trading partner of the

United States engaged in conduct of the kind described in Section 3004 of the 1988

Act during the relevant period. This determination has taken account of a broad range of

factors, including not only trade and current account imbalances and foreign exchange

intervention (the 2015 Act criteria), but also currency developments, exchange rate

practices, foreign exchange reserve coverage, capital controls, and monetary policy.

Treasury continues to carefully track the foreign exchange and macroeconomic policies of

U.S. trading partners under the requirements of both the 1988 Act and the 2015 Act, and to

review the appropriate metrics for assessing how policies contribute to currency

misalignments and global imbalances. The Administration has strongly advocated for our

major trading partners to carefully calibrate policy tools to support a strong and

sustainable global recovery. Treasury also continues to stress the importance of all

economies publishing data related to external balances, foreign exchange reserves, and

intervention in a timely and transparent fashion. 
6

Section 1: Global Economic and External Developments

This Report covers economic, trade, and exchange rate developments in the United States,

the global economy, and the 20 largest trading partners of the United States for the four

quarters through December 2021 and, where monthly data are available, through endApril 2022 and, where quarterly data are available, through end-March 2022. Total goods

and services trade of the economies covered with the United States amounted to more than

$4.6 trillion in the four quarters through December 2021, almost 80% of all U.S. trade

during that period. 

U.S. Economic Trends

Gross domestic product (GDP) in United States recovered to, and surpassed pre-pandemic

economic activity in 2021, supported by federal financial assistance, healthy household

balance sheets, favorable financial conditions, and mass distribution of vaccines—even as

more contagious coronavirus variants emerged, and supply-chains were strained. As a

result, real GDP rose 5.5% over the four quarters of 2021—marking the fastest annual pace

of growth in 37 years—while firms added 6.7 million new jobs, the most jobs created in a

single year on record. At the same time, inflation accelerated throughout 2021: as

measured by the consumer price index (CPI), the 12-month change in prices was 7.1% in

December 2021 as demand recovered faster than supply during the year.

In the first quarter of 2022, real GDP declined 1.5% at an annual rate, according to the

advance (first) estimate. This reflected a much slower inventory build, a surge in imports,

and declines in government spending at all levels. Nonetheless, demand by households and

businesses strengthened growth in final private domestic purchases accelerated to a

healthy 3.7% rate. Firms added another 2.1 million jobs in the first four months of the

year, and the unemployment rate (U-3) was 3.6% in April, only 0.1 percentage points above

the five-decade low just before the pandemic. Moreover, the prime-age (ages 25 to 54)

labor force participation rate (LFPR) has increased by a net 0.5 percentage points in the

first four months of 2022. Meanwhile inflation further accelerated in the first four months:

inflation as measured by the personal consumption price index—the Federal Reserve’s

preferred measure was up 6.3% over the year ending April 2022. However, year-on-year

inflation is likely to slow in the coming months as monthly rates moderate relative to yearearlier rates and monetary policy accommodation is expeditiously removed.

Despite a decline in real GDP during this year’s first quarter, the outlook for 2022 as a

whole remains positive—though risks to the outlook remain, particularly uncertainty

related to the illegal Russian invasion of Ukraine, continued supply chain disruptions due

to COVID-19 lockdowns in Asia, and rising interest rates. As of May, private forecasters

project real GDP to grow 1.5% over the four quarters of 2022.

Economic Performance in 2021

Economic activity in 2021 was marked by two distinct patterns of growth in each half of

the year. The first half of 2021 was noteworthy for the development and distribution of
7

vaccines, as well as the disbursement of additional pandemic aid packages—the COVIDRelated Tax Relief Act of 2020 and the American Rescue Plan (ARP) Act. These packages

secured additional funding to address COVID-19 infections and vaccinate the population,

ensured financial security for low- and middle-income households, and provided liquidity

for small businesses as well as state, local, and tribal governments. In addition, consumers’

assessments of the near-term outlook improved and businesses reopened, even as inflation

continued to accelerate. As a result, real GDP surged by 6.5% during the first half of the

year—the strongest half-year pace since 1984, notwithstanding the unprecedented pace

seen in the initial post-shutdown recovery—and by the end of the second quarter of 2021,

real GDP rose above its pre-pandemic level.

The second half of the year was marked by the winding down of fiscal support as well as

the emergence of two new COVID-19 variants (Delta and Omicron) that increased

disruptions to supply chains and boosted inflation. Real GDP growth slowed to a still-brisk

pace of 4.6% at an annual rate during the latter half of 2021, with much of the growth due

to the rebuilding of inventories as private domestic final demand—that is, household

consumption, business fixed investment, and residential investment—grew more slowly.

Real growth in private domestic final demand (PDFD) slowed to 2.0% at an annual rate

during the second half of 2021, after jumping by 11.0% in the first half. All categories of

PDFD showed slower or negative growth in the second half of 2021. Real personal

consumption expenditures increased by 2.2% during the second half of 2021, a

considerably slower pace than the stimulus-boosted 11.7% jump during the first half of the

year, as real PCE was close to pre-pandemic trend. Business fixed investment (BFI)

similarly slowed, gaining just 2.3% in the latter half of 2021 after rising 11.1% in the first

half. The slower growth of BFI was primarily due to a drop in in structures investment

(-6.2%) as well as a minimal increase in spending on equipment (0.2%). Investment in

intellectual property product also slowed (9.0%), but less drastically than the other two

categories of BFI. Residential investment was the one category of PDFD to outright

decrease; it declined 2.9% during the second half of 2021, after a flat reading during the

first half. Nevertheless, both residential investment and business equipment investment

remain well ahead of pre-pandemic trend.

Meanwhile, private inventory accumulation turned positive in the third quarter of 2021,

due to a reduced drawdown in inventories, and the contribution increased in the final

quarter of the year as firms began to rebuild inventories. In the two quarters combined,

the change in private inventories added an average 3.8 percentage points to GDP growth in

the latter half of 2021, after subtracting 1.9% points in the first two quarters of 2021.

The remaining major components of GDP subtracted from economic growth in the second

half of 2021. The impulse from total government spending turned negative as federal

pandemic programs waned—particularly the Paycheck Protection Program, which ceased

purchasing services from financial institutions to service small business loans. Total

government consumption and investment declined 0.9% after rising by 1.1% during the

first half. Meanwhile, the contribution of net exports to real GDP growth remained

modestly negative in the second half of 2021—though less so than in the first. Net exports
8

subtracted an average 0.7 percentage points from GDP growth in the second half of 2021,

after being a 0.9% drag on growth in the first. Although growth of exports turned strongly

positive in the fourth quarter, the contribution was offset by a third quarter decline in

exports as well as strong domestic demand for foreign goods and services. The continued

rise in imports in the second half of 2021 was likely driven by inventory restocking and

continued strong domestic demand for foreign goods.

The labor market recovery was consistently solid throughout 2021, and the pace of job

creation picked up a bit during the latter half of the year. Payroll job creation averaged

534,000 per month during the first half of 2021, then accelerated somewhat to 590,000 per

month during the second half. By December 2021, a total of 6.7 million jobs had been

added over the year, and the unemployment rate had fallen to 3.9%, or 2.8 percentage

points lower than the December 2020 level, the fastest calendar year decline in the

unemployment rate on record. Improvement in the LFPR was slower than in payrolls or

the unemployment rate, but some progress was made by the end of 2021. The overall

LFPR was range-bound between 61.4% and 61.7% during the first half of last year, as a

sizeable 0.7 percentage point increase in the prime-age LFPR was offset by stable or

negative changes in LFPRs for non-prime age cohorts. However, total LFPR resumed

recovery in the last two months of 2021, rising to 61.9%—though still 1.5 percentage

points below the high of 63.4% in early 2020—driven in part by a 0.2 percentage point gain

in the prime-age LFPR to 81.9%, which was 1.2 percentage points below the January 2020

high of 83.1%.

Inflation began picking up early in 2021. Throughout the year, many factors helped drive

prices higher, including a slow recovery in global energy production, supply-chain

disruptions and related shortages of specific inputs, persistently strong demand for

durable goods, rising costs of food supply-chain inputs, brisk growth in house prices, and

increased demand for pandemic-sensitive services (such as travel, leisure, and hospitality)

as the economy reopened. Although inflation eased modestly in the third quarter, it again

accelerated by the end of the year. Over the year through December 2021, the headline

consumer price index CPI rose by 7.1% reflecting in part a nearly 50% jump in gasoline

prices and a 6.3% increase in the food CPI. In addition, growth in the CPI for core goods

and services rose by 5.5% over the year through December 2021, boosted by soaring prices

for new and used motor vehicles—with yearly gains of 11.8% and 37.3%, respectively—

and a 4.1% jump in the shelter index over the same period.

Economic Developments Since December 2021

Real GDP growth declined by 1.5% at an annual rate in the first quarter of 2022, reflecting a 

much slower inventory build, a larger drag from net exports, and declines in government 

spending at all levels. However, real growth in PDFD accelerated during the first quarter to 

3.9% at an annual rate. Among its components, real PCE grew 3.1%, as growth in spending 

on services accelerated to 4.8%, offsetting a flat reading in consumption of goods. Business 

fixed investment jumped 9.2% at an annual rate in the first quarter. Although investment 

in structures declined 3.6% and posed a small drag, equipment investment surged by 

13.2% and spending on intellectual property products grew by 11.6%. Private residential 
9

investment grew by 0.4%. Despite healthy activity in much of the domestic economy, 

slower growth in inventories during the first quarter subtracted 1.1 percentage points 

from real GDP, and the widening of the trade deficit, due to surging imports and weaker 

demand for U.S. exports pared 3.2 percentage points from growth. Real government 

spending declined 2.7% at an annual rate in the first quarter, partly reflecting a decline in 

federal expenditures as well as surging construction prices for state and local governments 

which has lowered real investment. 

Labor markets remained tight in the early months of 2022. Firms added 2.1 million jobs 

during the first four months of the year, and the unemployment rate (U-3) was 3.6% in 

April, only 0.1 percentage points above the five-decade low just before the pandemic. The 

primary source of labor supply has recovered moderately in recent months: the prime-age 

LFPR has risen by 0.5 percentage points so far this year. At 82.4%, the prime-age LFPR was 

just 0.6 percentage points below pre-pandemic levels. Some alternative measures of labor 

market tightness are even outperforming 2019 levels, suggesting markets are even tighter 

than before the pandemic, which has pushed up wage growth—particularly in lower-wage 

industries. Since August 2021, the ratio of job-openings to unemployed has held at a 

historically low rate, such that there are roughly two job openings per unemployed 

person—a ratio even below that seen in 2019. Similarly, the quits rate has risen to a 

historically high level of 3.0% of the labor force, or 0.6 percentage points above previous 

peak set in 2019.

Inflationary pressures accelerated during the first few months of 2022. Over the year

ending April 2022, inflation as measured by the CPI was 8.3%. The food price index was up

9.4% over the twelve months through April 2022, and the energy index rose 30.3% over

the same period. The core CPI inflation was 6.2% over the year through April and is

becoming increasingly broad-based. Inflation from shelter has been rising at a rapid clip on

a monthly basis, and over the year through April, reached 5.1%. The Federal Reserve’s

preferred measure of inflation, the PCE price index, has shown a similar pattern of

acceleration as compared with the CPI (headline rate of 6.3% over the year through April)

but prints at a slower rate due to differences in computation. The PCE measure is

reweighted monthly and shows substitution effects, whereas the CPI measure is

reweighted every two years and does not adjust for substitution of lower-priced products. 

Although headline and core inflation by both measures have started to slow on a year-overyear basis, the Russian invasion of Ukraine and COVID-related shutdowns in China present

upside risk to the inflation outlook as they will elevate energy prices, which are likely to

feed through to food prices as agricultural supply-chains rely on diesel and natural gas.

Moreover, shutdowns in China are likely to lengthen the duration of supply-chain

disruptions, keeping inventories lean and prices elevated.

Federal Finances

The federal government’s deficit and debt were trending higher before the pandemic but

rose sharply as a result of the various fiscal responses to combat the pandemic’s effect on

the economy.
10

At the end of FY 2021, the federal government’s budget deficit was $2.78 trillion (12.4% of

GDP), declining from $3.13 trillion (15.0% of GDP) at the end of FY 2020 but still $1.79

trillion higher than in FY 2019. Federal receipts totaled $4.05 trillion in FY 2021, up $626

billion (18.3%) from FY 2020. Net outlays for FY 2021 were $6.82 trillion, up $266 billion

(4.1%) from FY 2020, primarily due to the fiscal aid measures enacted in late 2020 and

early 2021. At the end of FY 2021, gross federal debt was $28.4 trillion, up from $26.9

trillion at the end of FY 2020. Federal debt held by the public, which includes debt held by

the Federal Reserve but excludes federal debt held by government agencies, rose from

$21.0 trillion at the end of FY 2020 (100.3% of GDP) to $22.3 trillion by the end of FY 2021

(99.7% of GDP).

Federal finances have improved thus far in FY 2022 as federal fiscal aid programs have

wound down. In the first seven months of FY 2022, the federal deficit totaled $0.36 trillion,

down from $1.93 trillion in the comparable period in FY 2021. Receipts for the fiscal year

to date are $0.84 trillion higher than last year, while outlays are $0.73 trillion lower. At the

end of April 2022, gross federal debt stood at $30.4 trillion while debt held by the public

was $23.8 trillion.

U.S. Current Account and Trade Balances

The current account deficit

rose in the second half of

2021 to 3.7% of GDP, up 0.3

percentage point from the

previous half. This was the

largest deficit as a share of

GDP since the end of 2008. In

the second half of 2021, the

goods deficit increased while

services and income

surpluses fell. From 2013 to

2020, the headline U.S.

current account deficit had

been quite stable, around 2-

2.5% of GDP. 

-5

-4

-3

-2

-1

0

1

2

3 H1 2013

H2 2013H1 2014H2 2014H1 2015H2 2015H1 2016H2 2016H1 2017H2 2017H1 2018H2 2018H1 2019H2 2019H1 2020H2 2020H1 2021H2 2021

2013 2014 2015 2016 2017 2018 2019 2020 2021

Percent of GDP

U.S. Current Account Balance

Goods Services Income Current Account Balance

Sources: Bureau of Economic Analysis, Haver
11

While U.S. domestic

demand recovered

quickly, demand in the

rest of the world did so

more moderately,

resulting in a widening

trade deficit – both in

nominal terms and as a

share of GDP. Steep

goods trade recovery,

with both exports and

imports back to prepandemic levels in 2021,

reflected control over the pandemic and robust fiscal policy that boosted economic output. 

The U.S. goods and services trade deficit was 3.8% of GDP in the second half of 2021,

slightly wider than in the first half of 2021, as growth in U.S. imports of both goods and

services outpaced export growth. 

At the end of 2021, the U.S. net international investment position marked a net liability of

$18.1 trillion (a record 75% of GDP), a deterioration of $2.2 trillion compared to first half of

2021. The value of U.S.-owned foreign assets was $35.2 trillion, while the value of foreignowned U.S. assets stood at $53.3 trillion. Deterioration in the net position was due in part

to the outperformance of U.S. equity markets relative to global peers. 

International Economic Trends

Following a steep contraction of the global economy in 2020, global output grew 6.1% in

2021 according to the IMF as real GDP in most advanced economies recovered to prepandemic levels of output. In contrast, many emerging markets and developing economies

have faltered in regaining their footing back to their pre-pandemic trajectories both in

terms of output and labor market recovery. The recovery was most pronounced in

economies that undertook strong policy support and where large shares of the population

have been vaccinated—though the Delta and Omicron variants complicated the full

resumption in economic activity for most. In addition, much of the world is contending

with elevated inflation rates due to faster-than-expected demand growth and supply chain

disruptions. As inflation has accelerated, some governments have been left with tough

policy decisions on whether to support the recovery or stem rising prices. Select countries,

most notably in the Asia-Pacific region, have not seen inflation accelerate as much as the

rest of the world as renewed COVID-19 cases and lockdowns continue to drag down their

economies. These factors – rising inflation, available scope and efficiency of policy support,

containment of the virus, and pre-existing vulnerabilities – all form countries’ unique

economic contexts and risks contributing to further inequality within and across countries.

-40

-20

0

20

40

60

Jan-2006Jan-2007Jan-2008Jan-2009Jan-2010Jan-2011Jan-2012Jan-2013Jan-2014Jan-2015Jan-2016Jan-2017Jan-2018Jan-2019Jan-2020Jan-2021

Jan-2022

Annual Percent Change

U.S. Goods and Services Trade Growth

Exports Imports

Source: U.S. Census Bureau 
12

The IMF projects global economic growth will slow in 2022 to 3.6% primarily as a result of

Russia’s war against Ukraine and continued outbreaks of COVID-19. In addition to the

tremendous human cost of Russia’s war and the devastation it is having on the Ukrainian

economy, regional and global spillovers are significant. Trade disruptions and rising

commodity prices are boosting inflation and increasing food insecurity. Downside risks to

the outlook include a potential acceleration of the war, as well as further COVID-related

lockdowns in China and potential new variants. Given this additional uncertainty,

countries should balance targeted policy responses where possible, with keeping mediumterm inflation expectations anchored. Countries that still have low vaccination uptake and

high COVID-19 case loads should prioritize health measures and maintain fiscal, monetary,

and macroprudential support policies where there is policy space and is warranted by

macroeconomic conditions. 

0

2

4

6

8

10

12

14 India China Taiwan Mexico Brazil Malaysia Vietnam Thailand

2021 2022 (Projected)

0

2

4

6

8

10

12

14 Ireland Singapore UK France Italy

BelgiumUS Netherlands Canada Korea Switzerland Germany

Japan

Annual Percent Change

Real GDP Growth

Sources: IMF World Economic Outlook April 2022

Advanced Economies Emerging Market Economies
13

Foreign Exchange Markets6

Even against the backdrop of

geopolitical shocks and monetary

tightening, capital outflows from

emerging markets and currency

valuation fluctuations remained

relatively orderly and subdued. The

nominal trade-weighted dollar

strengthened moderately by 7.3%

from the end of December 2020 to

end April 2022. The dollar

appreciated by 11.2 % against the

currencies of other major advanced

economies over this period, most

notably against the euro and the

Japanese yen. In contrast, the dollar

appreciated by only 3.7% against

major emerging economies’

currencies. Since the end of

December 2020, the dollar

depreciated against the Brazilian

real the most of all major trading

partners’ currencies; after a

dramatic decline in Brazilian real

value in the second half of 2021, it

retraced much of its value this year

to date. 

In the first half of 2021, the nominal trade weighted dollar strengthened by 1.2%. The

upward climb of the dollar continued into the second half of 2021 by 2.4% though there

were smaller downward movements against the Swiss franc, Chinese renminbi, Vietnamese

dong, and the New Taiwan Dollar. Between end-2021 and end-April 2022, among U.S.

major trading partner currencies, the dollar has depreciated against the Brazilian real and

to a lesser extent, against the Mexican peso, while appreciating against all other major

trading partners’ currencies. The Brazilian real has benefited from rising commodities

prices and from interest rate hikes. During this period, the dollar has appreciated most

significantly against the Japanese yen and Taiwanese dollar.

 

6 Unless otherwise noted, this Report quotes exchange rate movements using end-of-period data. Bilateral

movements against the dollar and the nominal effective dollar index are calculated using daily frequency or

end-of-period monthly data from the Federal Reserve Board. Movements in the real effective exchange rate

for the dollar are calculated using monthly frequency data from the Federal Reserve Board, and the real

effective exchange rate for all other currencies in this Report is calculated using monthly frequency data from

the Bank for International Settlements (BIS) or JP Morgan if BIS data are unavailable.

Emerging Market Economies (EME)

-20 -15 -10 -5 0 5 10 15 20 25

EME basket

Brazil

China

Vietnam

Mexico

Singapore

Taiwan

India

Malaysia

Thailand

Advanced Foreign Economies (AFE)

-20 -15 -10 -5 0 5 10 15 20 25

2021 H1 2021 H2 2022 H1 (through end Apr) Net change

U.S. Dollar vs. Major Trading Partner Currencies

(+ denotes dollar appreciation)

Contribution to percent change relative to end-Dec 2020

Broad dollar index

Sources: FRB, Haver

-20 -15 -10 -5 0 5 10 15 20 25

AFE basket

Canada

UK

Switzerland

Euro

Japan
14

On a real effective basis, the dollar appreciated 7.2% from end-December 2020 to end-April

2022. The real broad dollar is almost 9% above its 20-year average as of end-April 2022. 

The IMF continues to judge the dollar to be overvalued on a real effective exchange rate

basis. Meanwhile, the real effective exchange rates of several surplus economies that the

IMF assessed to be undervalued in 2020 have adjusted minimally or depreciated through

April 2022, relative to the 2020 average (e.g., Germany, Malaysia, and Thailand). However,

these adjustments only provide partial information about current exchange rate

misalignments.

Global Imbalances

Global current account imbalances were broadly stable in the few years prior to the

pandemic. The IMF April 2022 WEO indicates that, at the global level, current account

surpluses widened for the second consecutive year to 1.9% of world GDP in 2021, up 0.1

percentage points from 2020, with the latest estimates of excessive current account

-30

-20

-10

0

10

20 U.K. United States Canada Brazil Australia India Mexico Belgium Switzerland Netherlands Korea Italy Ireland Euro Area Singapore Vietnam Thailand Germany

Malaysia

Japan Percent

2020 REER Gap Assessment (mid)1 Adjustments as of Apr-20222

CA Deficit Economies3 CA Surplus Economies

IMF Estimates of Exchange Rate Valuation and Recent Developments Undervalued Overvalued

Sources: IMF 2021 External Sector Report, IMF 2021 Article IV Consultation Staff Report for Ireland, IMF 2020 Article IV Consultation Staff 

Report for Vietnam, BIS REER Indices, JP Morgan, FRB

1/The IMF's estimate of real effective exchange rate (REER) gap (expressed as a range) compares the country's average REER in 2020 to 

the level consistent with the country's medium-term economic fundamentals and desired policies. The midpoint of the gap range is 

depicted above. REER gap for Vietnam uses 2019 REER Gap.

2/Change between 2020 average REER and end-April 2022. Because the REER level consistent with the country’s medium-term economic 

fundamentals and desired policies changes over time, these adjustments provide partial information about current exchange rate 

misalignments.

3/Economies sorted based on whether they were more frequently in deficit or surplus over the past five years.

Note: The IMF does not provide an estimate of Taiwan's REER gap.
15

surpluses and deficits at 1.2%

of world GDP in 2020.7 The

efforts to contain the COVID19 virus and its effects led to

extraordinary policy

responses that continue to

influence global trade and

shifts in saving and

investment, and are driving

increases in global

imbalances.

Supply demand imbalances

were especially problematic

in the past year as the

pandemic came under control in many parts of the world while other countries continued

to intermittently lock down. A stronger recovery in advanced economies, especially in the

United States, created external demand that has fueled the recovery in many emerging and

developing economies. 

External stock positions

widened to a historical peak

in 2020. The IMF estimates

that this was due to changes

in net foreign asset positions

that were larger than

explained by current account

balances in a number of

cases, reflecting large

valuation changes, including

those driven by asset price

and currency movements. 

Since then, stocks of foreign

assets and liabilities have

decreased but still remain at

historic highs.

7 See the Annex of this Report for a more detailed discussion of when current account surpluses and deficits

may be considered excessive and the evolution and drivers of global current account surpluses and deficits

over time.

-3

-2

-1

0

1

2

3 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Percent of Global GDP

Global Current Account Imbalances

China Germany Japan

Other Surplus United States Other Deficit

Statistical Discrepancy

Sources: IMF WEO, Haver

-30%

-20%

-10%

0%

10%

20%

30%

20052006200720082009201020112012201320142015201620172018201920202021

Percent of Global GDP

International Investment Positions

China Germany Japan

Other Surplus United States Other Deficit

Note: The difference between aggregate creditor and debtor positions reflect 

any missing country-level data, as well as the global statistical discrepancy.

Sources: IMF, Central Bank of China (Taiwan)
16

Capital Flows to Emerging Market Economies

Net capital flows to emerging

market economies remained

mixed during 2021. Over the

four quarters through

December 2021, net outflows

of portfolio and other

investment totaled $357

billion, just $25 billion less

than the same period in 2020. 

Throughout the year,

nonresident net flows

remained positive, suggesting

that foreign investor demand

for emerging market

economy assets recovered as

the global economic recovery

took hold, but were offset by

resident net outflows. On a

cumulative basis since the

onset of the pandemic, net

portfolio flows have

continued to decline further,

reaching roughly $500 billion

below pre-pandemic levels.

Excluding China, net outflows

of portfolio investment to

emerging markets have been

more pronounced, with a

cumulative decline of $644

billion compared to prepandemic levels.

On balance, total net capital flows continued their recovery over the first three quarters of

2021. Continued robust foreign direct investment, along with decelerating outflows of

other investment, kept net flows relatively buoyant over the first half of the year. Net other

investment flows further accelerated this rebound in capital flows during the third quarter. 

During this time, net portfolio outflows remained persistent and driven by net resident

outflows.8 Since then, net other investment outflows resumed in the fourth quarter of

2021, weighing on net aggregate flows along with accelerating net portfolio outflows. Amid

nascent signs of tightening global financial conditions, these combined net outflows

8 In particular, large resident portfolio outflows from China in the first quarter of 2021 totaled more than $70

billion. Resident portfolio outflows from China have since decelerated but continued during the rest of the

year, in line with the broader trend of net resident portfolio flows since 2014.

-600

-500

-400

-300

-200

-100

0

100

200

t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8

USD Billions

Time since onset (quarters)

Global Financial Crisis (2008) Taper Tantrum (2013)

RMB Devaluation (2015) EM Selloff (2018)

COVID Sudden Stop (2020)

Note: Depicts net resident and nonresident portfolio investment flows on a cumulative basis 

following particular shock episodes. 2021 reflects data through the end-December where 

available.

Source: National Authorities, U.S. Department of the Treasury Staff Calculations

Capital Outflows

Capital Inflows

Cumulative Portfolio Flows to Emerging Markets

-300

-200

-100

0

100

200

300

400

Q4-08 Q4-10 Q4-12 Q4-14 Q4-16 Q4-18 Q4-20

USD Billions

Net Capital Flows to Emerging Markets

Financial Derivatives (Net) Other Investment (Net)

Direct Investment (Net) Portfolio Investment (Net)

Net Capital Flows (excl reserves)

Note: Financial account (excluding reserves) adjusted for errors and ommissions. 

2021 reflects data through the end-December where available.

Source: National Authorities, U.S. Department of the Treasury Staff Calculations

Capital Outflows

Capital Inflows
17

reached $145 billion over the fourth quarter, approaching levels last seen in early 2021 and

early 2020.

Higher frequency data (from sources beyond quarterly balance of payments data) suggest

that, since end-2021, nonresident portfolio flows to emerging markets continue to be

mixed and remain relatively volatile. Monetary policy tightening brought about from

rising, broad based inflationary pressures, geopolitical uncertainty brought on by Russia’s

war against Ukraine, and an expected slowdown in global growth have all contributed to

tightening financial conditions across emerging market economies. Net foreign portfolio

flows collapsed after Russia’s invasion — with the speed and scale of cumulative outflows

during the early weeks of the war matching the March 2020 COVID-19 selloff — but have

since leveled off. These data also suggest that nonresident portfolio outflows from China

may have reached record highs in March 2022 driven by these same factors, along with a

worsening outlook for China’s economy amid tightening lockdown measures.

Foreign Exchange Reserves

Global foreign currency reserves increased by $231 billion over the four quarters through

December 2021, reaching $12.9 trillion. Estimated net purchases of $516 billion in foreign

exchange were offset partly by a $301 billion decline due to valuation effects from dollar

appreciation over the year. Meanwhile, estimated interest income contributed minimally

to the rise in reserves. 

Although there is no single commonly accepted standard for assessing reserve adequacy,

Treasury assess that the economies covered in this Report continue to maintain ample—or

more than ample—foreign currency reserves compared to standard adequacy benchmarks. 

Reserves in most of these economies are more than sufficient to cover short-term external

liabilities and anticipated import costs. Moreover, the most recent IMF assessments of

adequacy based on composite metrics across emerging market economies for 2020 suggest

reserves are broadly adequate. 

Credible and effective macroeconomic policy frameworks, rather than intervention to

accumulate reserves beyond adequate levels, should serve to buffer external shocks. This

is particularly relevant for economies with other reserve-like resources such as swap lines,

sovereign wealth funds, and credit lines from international financial institutions that can
18

serve as additional buffers. Moreover, foreign exchange intervention should not substitute

for warranted macroeconomic adjustment. 

Economic Developments in Selected Major Trading Partners

China

China’s economy continued to recover from the pandemic in 2021, with real GDP

increasing 8.1% year-on-year, but economic activity slowed in the latter half of 2021 due to

property sector stress and energy supply disruptions. Private consumption remains weak,

reflecting poor consumer confidence amid slowing growth momentum, periodic large-scale

lockdowns to curb the spread of COVID-19, and other pandemic-related uncertainty. 

Subdued private consumption also reflects the unbalanced nature of China’s

macroeconomic policy response to the pandemic, which has favored infrastructure

investment and support for firms rather than direct support to households. In 2021, the

authorities significantly tightened their fiscal stance and moderately tightened monetary

FX Reserves 

(USD Bns)

1Y Δ FX 

Reserves 

(USD Bns)

FX Reserves 

(% of GDP)

FX Reserves 

(% of ST debt)

FX Reserves 

(% of IMF ARA 

Metric)*

China 3,250.2 33.6 18% 238% 120%

Japan 1,283.3 -29.5 26% 41% ..

Switzerland 1,033.8 20.6 127% 81% ..

India 569.9 27.7 18% 497% 191%

Taiwan 548.4 18.5 71% 278% ..

Korea 438.3 8.2 24% 264% 99%

Singapore 408.3 48.9 103% 33% ..

Brazil 330.9 -11.8 21% 420% 164%

Thailand 224.8 -21.2 44% 357% 251%

Mexico 180.8 -3.4 14% 364% 129%

UK 127.8 -11.8 4% 2% ..

Malaysia 107.2 4.5 29% 114% 118%

Vietnam 107.4 13.0 30% 338% ..

Canada 78.1 1.3 4% 8% ..

France 53.6 -1.5 2% 2% ..

Italy 48.6 2.0 2% 4% ..

Australia 37.4 5.3 2% 9% ..

Germany 37.0 0.1 1% 1% ..

Belgium 11.2 0.2 2% 2% ..

Netherlands 5.3 -0.6 1% 1% ..

Ireland 5.9 0.9 1% 1% ..

United States 40.7 -3.8 0% 1% ..

World 12,915.2 218.4 n.a. n.a. ..

Foreign exchange reserves as of end-December 2021.

GDP caluclated as sum of rolling 4Q GDP through Q4-2021.

Table 1: Foreign Exchange Reserves

Sources: National Authorities, World Bank, IMF, BIS.

* IMF Assessing Reserve Adequacy Metric, a composite measure of reserve adequacy, as of end-2020. 

China's reserves are compared to the IMF's capital controls-adjusted metric. The IMF assesses reserves 

between 100-150% of the ARA metric to be adequate.

Short-term debt consists of gross external debt with original maturity of one year or less, as of the end of Q4-

2021; Vietnam as of Q1-2021; Ireland as of Q2-2020.
19

policy relative to 2020. The economic outlook for this year is subject to large downside

risks, primarily due to a large surge in COVID-19 cases starting in March 2022 that has led

to an acceleration in lockdowns of major cities. 

China’s current account

surplus was stable,

increasing slightly to 1.8% of

GDP in 2021 from 1.7% of

GDP in 2020, in part

reflecting continued strong

global demand for

manufactured goods, buoyed

by China’s ability to expand

and maintain manufacturing

capacity despite pandemicrelated supply chain

disruptions. As such, goods exports increased by 28% last year. Goods imports grew by an

even more rapid 33% last year, in part reflecting higher commodity prices. China’s services

trade deficit remained subdued at 0.6% of GDP last year (compared to 1.0% of GDP in

2020) largely due to continued restrictions on outbound travel. Treasury assesses that in

2021, China’s external position was broadly in line with economic fundamentals and

desirable policies, with an estimated current account gap of 0.3% of GDP.9 

China’s bilateral goods trade surplus with the United States remains the largest by far of

any U.S. trading partner, growing to $355 billion in 2021 from $310 billion in 2020. While

export growth to the United States was broad based, electrical machinery and other

manufactured goods saw the largest increases last year. China ran a bilateral services trade

deficit with the United States of $15 billion last year. Overall, China’s bilateral goods and

services surplus with the United States reached $340 billion in 2021, compared with $285

billion in 2020. 

China’s financial account swung into a surplus of $38 billion in 2021 from a deficit of $61

billion in 2020, amplifying appreciation pressures on the RMB. Net FDI inflows

strengthened to $206 billion from $99 billion in the prior year. Net portfolio inflows

moderated to $51 billion in 2021 from $96 billion in 2020 but showed an accelerating

trend over the course of the year as residents’ purchases of foreign securities moderated

while non-residents’ purchases of Chinese securities remained fairly strong. These capital

inflows were partially offset by a net other investment deficit of $230 billion, primarily

driven by large outflows of “currency and deposits” and loans.10 A net errors and

omissions deficit of $167 billion provided another balancing outflow and suggests strong

undocumented capital outflows not captured in identified components of the financial

account, in line with previous years.

9 The estimated current account gap reflects offsetting factors, where pandemic related factors—specifically

adjustments for temporarily high levels of tourism, transportation, and medical goods flows—counteracted

the effect of macroeconomic policy distortions on China’s current account.

10 Excluding China’s SDR allocation, the “other investment” deficit was $271 billion.

-5

0

5

10

200820092010201120122013201420152016

20172018201920202021

Percent of GDP

China: Current Account Balance

Income Services Goods Current Account Balance

Sources: SAFE, Haver
20

The RMB appreciated by

2.7% against the dollar and

7.9% against the People’s

Bank of China’s (PBOC) China

Foreign Exchange Trade

System (CFETS) nominal

basket in 2021.11 The real

effective exchange rate

strengthened by 4.4% last

year. The RMB experienced

its sharpest appreciation

against the dollar in the

second and fourth quarters of 2021 and saw its largest gains on a nominal effective basis

during periods in which the broad dollar was also strengthening, particularly the first and

fourth quarters of 2021. The RMB’s appreciation trend persisted in early 2022 but

reversed sharply in mid-April, when the RMB depreciated by 5.4% against the dollar in just

three weeks amid portfolio capital outflows, a darkening growth outlook, and a growing

divergence in expectations for monetary policy between China and the United States. 

In 2021, the authorities implemented several regulatory measures that had the aggregate

effect of counteracting RMB appreciation pressures. In late May 2021, following two

months of nearly continuous appreciation of the RMB against the dollar, the PBOC

announced that it would raise the foreign currency required reserve ratio from 5% to 7%

for the first time since 2007, tightening onshore FX liquidity conditions. In December 2021,

as the RMB neared a three-year high against the dollar, the PBOC again raised this ratio by

two percentage points, and Chinese state media explicitly described this adjustment as a

tool to “deal with the appreciation of Chinese currency.” In 2021, the State Administration

of Foreign Exchange increased outbound investment quotas under the qualified domestic

institutional investment (QDII) program seven times, following three increases in 2020. 

The quota increases over 2020-2021 opened headroom for an additional $54 billion in

capital outflows, more than the cumulative quota increases over the 11 years prior. In

September 2021, the PBOC launched the Southbound Bond Connect scheme, which permits

mainland investors to purchase up to $75 billion in Hong Kong-traded bonds annually. 

China provides very limited transparency regarding key features of its exchange rate

mechanism, including the policy objectives of its exchange rate management regime, the

relationship between the PBOC and foreign exchange activities of the state-owned banks,

and its activities in the offshore RMB market. The PBOC manages the RMB through a range

of tools including setting the central parity rate (the “daily fix”) that serves as the midpoint

of the trading band against which the onshore RMB is allowed to trade within 2% in either

direction. Chinese authorities can directly intervene in foreign exchange markets as well as

influence the interest rates of RMB-denominated assets that trade offshore, the timing and

11 The CFETS RMB index is a trade-weighted basket of 24 currencies published by the PBOC.

85

90

95

100

105

110

85

90

95

100

105

110

Jan-15Jan-16Jan-17Jan-18Jan-19

Jan-20Jan-21Jan-22

Indexed December 2014 = 100

China: Exchange Rates

Bilateral vs. USD CFETS REER (monthly)

Sources: CFETS, FRB, BIS
21

volume of forward swap sales and purchases by China’s state-owned banks, and the

conversion of foreign exchange proceeds by state-owned enterprises.

The authorities have also used verbal intervention and their control over the daily fix to

influence the exchange rate. In May and November 2021, amid strong appreciation

pressure, PBOC statements sought to guide market expectations, emphasizing the need for

two-way movements in the exchange rate.12 In January 2022, amid continued appreciation

pressure, PBOC Deputy Governor Liu Guoqiang forecast that both “market and policy

factors” will correct deviations in the exchange rate from the equilibrium level.13 

Meanwhile, over the course of last year both the frequency and magnitude of deviations

between the “daily fix” and market expectations increased, sending a signal to market

participants. China’s lack of transparency and use of a wide array of tools complicate

Treasury’s ability to assess the degree to which official actions are designed to impact the

exchange rate. Treasury will continue to closely monitor China’s use of exchange rate

management, capital flow, and regulatory measures and their potential impact on the

exchange rate.

China is an outlier among the economies covered in this Report in not disclosing its foreign

exchange market intervention, which forces Treasury staff to estimate China’s direct

intervention in the foreign exchange market. 

China’s headline foreign

exchange reserves increased

by $34 billion over the course

of 2021, ending the year at

$3.3 trillion. Last year, the

PBOC’s foreign exchange

assets booked at historical

cost also increased on an

annual basis for the first time

since 2014, growing by $24

billion. Meanwhile, net

foreign exchange settlement

data, another proxy measure for foreign exchange intervention that includes the activities

of China’s state-owned banks, indicates net foreign exchange purchases of nearly $290

billion (1.6% of GDP) in 2021, adjusted for changes in outstanding forwards. The precise

causes for the large divergence between monthly changes in the PBOC’s foreign exchange

assets and net foreign exchange settlement data remain unclear.14 As noted in previous

12 PBOC, “Deputy Governor Liu Guoqiang Answers Press Questions on RMB Exchange Rate,” May 23, 2021,

http://www.pbc.gov.cn/en/3688110/3688172/4157443/4253138/index.html ; PBOC, “The Eighth Working

Meeting of the National Foreign Exchange Market Self-Discipline Mechanism was Held,” November 18, 2021,

http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4392338/index.html.

13 PBOC, “Transcript of the Press Conference on Financial Statistics in 2021,” January 18, 2022,

http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4451702/index.html.

14 Historically, monthly changes in the PBOC’s foreign exchange assets and net FX settlement data have

provided roughly similar estimates of the direction and size of Chinese foreign exchange intervention. The

-200

-150

-100

-50

0

50

100

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Oct-21

Billion U.S. Dollars

China: Estimated FX Intervention

PBOC FX Assets Bank Net FX Settlement

Sources: PBOC, SAFE, U.S. Treasury Estimates
22

Treasury FX Reports, the divergence between these proxy measures could be an indication

that monthly changes in the PBOC’s foreign exchange assets are not adequately capturing

the full range of China’s intervention methods, including official intervention conducted

through the state-owned banks. Overall, these developments highlight the need for China

to improve transparency regarding its foreign exchange intervention activities.

In formulating near-term macroeconomic policy, the authorities will need to balance

support for economic growth against long-term reform needs and continued risks to

financial stability. Near-term support for the property sector to prevent broader contagion

should be accompanied by measures to improve resolution and insolvency frameworks in a

timely manner. In that respect, the authorities’ introduction of a draft Financial Stability

Law is a welcome development. On the fiscal front, the central government retains space

for more accommodation; channeling this stimulus through its own budget would also

mitigate stresses on local government balance sheets. Directing additional support to

Chinese households would help to support private consumption amid ongoing pandemicrelated uncertainty. The authorities should refrain from exacerbating economic

imbalances through policies that stimulate exports and investment-led growth. Instead,

the authorities should prioritize measures to support household consumption, expand the

social safety net, and renew efforts to reduce the role of state-owned enterprises and state

intervention in the economy. 

Japan

Japan’s economy rebounded in 2021, growing 1.7% following the substantial 4.5%

contraction in 2020 amid the COVID-19 pandemic. Vaccinations reaching 80% of the

population and an easing of pandemic-related supply chain constraints supported the

recovery. Although growth was positive overall in 2021, growth contracted on a quarterby-quarter basis in both the first and third quarters owing to pandemic-related

retrenchments in spending and investment. GDP growth should advance incrementally in

2022, although a terms of trade shock in commodities and a potential slowdown among

regional trade partners pose downside risks. Though inflation has risen recently, monetary

policy remains highly accommodative on the expectation that inflation will not sustainably

breach the 2% target.

divergence between these indicators continued to widen in 2021, and the gap reached a six-year high on an

annual basis last year.
23

Japan’s current account

surplus was stable, remaining

at 2.9% of GDP in 2021 as in

2020. This is slightly below

the 3% surplus level the

current account has averaged

since 2000. The goods trade

surplus moderated to 0.3% of

GDP in 2021 amid rising

commodity prices. Likewise,

the services balance

remained in deficit, widening

slightly to 0.8% of GDP, due largely to pandemic-related retrenchment in the tourism

sector. Japan’s substantial net foreign income balance continues to drive the current

account surplus. At 3.3% of GDP, net income flows for 2021 are moderately greater than

the four quarters ending June 2021 when net inflows tallied 3.1% of GDP. Both primary

and secondary income components increased marginally compared to totals ending in the

second half of 2021, with primary income rising to 3.8% of GDP and secondary income

rising to -0.4% of GDP. Last year, primary income outflows were 2% of GDP, a modest level

for a country of Japan’s size and development, which reflects, in part, a low stock of FDI

within Japan.

15 Treasury assesses that in 2021, Japan’s external position was stronger than

warranted by economic fundamentals and desirable policies, with an estimated current

account gap of 2.0% of GDP.16 The goods and services trade surplus with the United States

was $60 billion in 2021, up 8%, or $4.4 billion, compared to 2020.

Japan experienced net capital outflows of 1.9% of GDP in 2021, driven by sizeable direct

investment abroad (2.4% of GDP) and loan and trade credit outflows (1.9%) that were

partly offset by net portfolio inflows (4.5% of GDP) that occurred amidst a sustained

depreciation of the yen.

The yen depreciated 10.4%

against the U.S. dollar in

2021, largely on widening

interest rate differentials

between the United States

and Japan. Last year’s

depreciation is a marked

contrast with 2020 when the

yen strengthened 5.3%. Since

the beginning of the year, the

yen has continued to decline,

depreciating an additional

15 In 2021 Japan’s primary income outflows were the lowest among G7 economies, which averaged 4.2% of

GDP in 2021, more than twice that of Japan. 

16 Treasury’s estimate of the current account gap assumes that Japan’s depressed tourism flows over the

course of the pandemic are largely transitory in nature and will dissipate over the medium term.

-4

-2

0

2

4

6 2008

2009201020112012201320142015

201620172018201920202021

Percent of GDP

Japan: Current Account Balance

Income Services Goods Current Account Balance

Sources: Bank of Japan, Ministry of Finance, Cabinet Office 

60

70

80

90

100

110

120

130

140

60

70

80

90

100

110

120

130

140

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21Jan-22

Indexed to 20Y Avg = 100

Japan: Exchange Rates

Bilateral vs. USD NEER REER

Sources: FRB, Bank for International Settlements
24

11.3% as interest rate differentials with the United States continue to widen and Japanese

monetary authorities maintain yield curve control operations. On a real effective basis, the

yen depreciated 10.0 % last year and currently sits near 50-year lows. 

Japan is transparent with respect to foreign exchange operations, regularly publishing its

foreign exchange interventions each month. It has not intervened in foreign exchange

markets since 2011. Treasury’s firm expectation is that in large, freely traded exchange

markets, intervention should be reserved only for very exceptional circumstances with

appropriate prior consultations.

Japanese policymakers have provided an appropriately sizable fiscal and monetary

response to support the economy amid the pandemic. Japan should remain responsive to

new developments that warrant additional support but renew its focus on implementing

structural reforms that would lift investment and improve potential growth. To achieve

this, policymakers could promote labor mobility to enhance the productivity of firms and

raise wage growth; support digitalization across industries, particularly small and medium

enterprises; further promote career development and advancement among female workers

who disproportionately suffer from underemployment; and advance enduring corporate

governance reforms. 

Korea

Korea’s real GDP grew by 4% in 2021 after a modest 1% contraction in 2020. Robust

growth in 2021 was led by a strong recovery in private consumption and government

spending, both supported by fiscal and public health measures designed to contain, and

now adapt to, the COVID-19 pandemic. The Korean government maintained an expanded

2021 budget that kept the fiscal deficit at 4.4% of GDP, roughly consistent as the year

before. The government has kept fiscal policy accommodative in 2022 to support the

recovery, with an expected fiscal deficit of 3.3%. With a low debt-to-GDP ratio of

approximately 50%, Korea has ample fiscal space to continue to support economic growth

while paring down pandemic relief. Korea’s central bank began to steadily tighten

monetary policy from August 2021 to address financial imbalances and above-target

inflation, implementing its fourth quarter-point policy rate increase to 1.75% in May 2022. 

Korea’s current account

surplus widened to 4.9% of

GDP in 2021 from 4.6% a

year prior. The increase was

driven by a narrowing in the

services deficit, which

continued to be affected by

pandemic induced distortions

in transportation and tourism

balances, and a structural

increase in the income

balance due to Korea’s

-4

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2

4

6

8

10

20082009201020112012201320142015201620172018201920202021

Percent of GDP

Korea: Current Account Balance

Income Services Goods Current Account Balance

Sources: Bank of Korea, Haver
25

growing net foreign assets. Korea’s bilateral trade surplus with the United States, inclusive

of goods and services, increased to $22 billion in 2021, up from $17 billion over the same

period in the year prior. Treasury assesses that in 2021, Korea’s external position was

weaker than warranted by economic fundamentals and desirable policies, driven in part by

the effect of demographics on national saving.

The Korean won depreciated

steadily throughout 2021,

weakening 8.6% against the

dollar and 5.3% on a real

effective basis. The won has

continued to weaken since

the beginning of 2022,

depreciating a further 5.4%

against the dollar by endApril. Moderation in Korea’s

goods trade balance driven

by rising commodity prices as

well as sizeable equity outflows stemming from rising global interest rates and elevated

geopolitical uncertainty have been factors in persistent won weakness. Korea’s national

pension fund’s total foreign asset holdings increased by around $60 billion in 2021, from

$270 billion to $330 billion, predominantly driven by valuation changes.

Korea reported net foreign

exchange sales of $14 billion

(0.8% of GDP) in the spot

market, which had the effect

of stemming won

depreciation in 2021. 

Treasury estimates that the

Korean authorities made

most of these sales in the

second half of 2021, when the

won depreciated 5.1%

against the dollar. Korea

maintains ample foreign exchange reserves at $437 billion as of February 2022, equal to

2.6 times gross short-term external debt. Korea publicly reports its foreign exchange

intervention on a quarterly basis.17 Korea has well-developed institutions and markets and

should limit currency intervention to only exceptional circumstances of disorderly market

conditions.

17 Treasury’s estimates are monthly and are based on interest-adjusted changes in foreign currency reserves

from monthly balance of payments statistics as well as changes in the central bank’s forward position. 

Treasury estimated $5 billion in estimated net foreign exchange sales in 2021. Differences in estimated Bank

of Korea operating profits drove the gap between Treasury’s estimate and the Korean authorities’ reported

intervention figure.

70

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130

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130

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16

Jan-17Jan-18Jan-19Jan-20Jan-21Jan-22

Indexed to 20Y Avg = 100

Korea: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements

-10

-5

0

5

10

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Oct-21

Billion U.S. Dollars

Korea: Estimated FX Intervention

Adj. Change in Gross Reserves Change in Net Fwd Book Est. Net FXI

Sources: Bank of Korea, U.S. Treasury estimates
26

Korea has supported the recovery through a mix of fiscal, monetary, and public health

policies. Going forward, the authorities should encourage strong, equitable, and green

medium-term growth. Progress on structural reforms, including strengthening social

safety net programs and addressing labor market duality, would help secure economic

opportunity for young workers and reduce old-age poverty while increasing potential

growth over the long term.

The Euro Area

The pace of the euro area recovery was strong in 2021, with real GDP expanding by 5.4%

year over year. Rising vaccination rates, a rollback of lockdown measures, and continued

policy support propelled the recovery. Domestic demand grew significantly, led by a

dramatic pick-up in private consumption expenditure. This reflected a combination of

rising real disposable income and a declining savings rate from substantially above-trend

levels at the height of the crisis in 2020. Net exports also made a positive contribution to

economic growth over 2021, rising alongside the improvement in global economic

conditions. While the recovery decelerated during the fourth quarter due, in part, to the

spread of the Omicron variant, euro area real GDP nevertheless exceeded its pre-crisis level

by the end of the year and the unemployment rate reached a record low. The recovery’s

continued momentum is now threatened by Russia’s war against Ukraine, which has

imparted substantial uncertainty into the economic picture, exacerbated supply chain

woes, and reduced real disposable incomes through rising energy costs. In addition,

COVID-19 case counts have increased in many parts of the euro area during the early

months of 2022. The IMF expects the euro area economy to grow 2.8% in 2022, a

downgrade of 1.1 percentage points from its January projection. 

The unprecedented monetary and fiscal policy response launched to counter the pandemic

was instrumental in setting the foundation for a robust recovery and remained a key

support in 2021. According to European Commission estimates, fiscal support at the

national level amounted to 5.2% of euro area GDP in 2021. While the European

Commission expects temporary measures, such as job retention schemes, to wind down in

2022, it projects measures supporting the recovery, such as public investment, to increase. 

These recovery-support measures will be funded in part through the roughly $847 (€807)

billion Next Generation EU (NGEU) pandemic recovery package agreed in July 2020.18

NGEU is now operational, with $66 (€63) billion in funds from the Recovery and Resilience

Fund (RRF)—the main component of the NGEU—distributed to member states in 2021. 

The RRF consists of up to $355 (€338) billion in grants and $405 (€386) billion in loans. 

While member states have applied for all of the RRF’s grants, roughly $236 (€225) billion

in lending capacity remains. The fiscal picture will also be impacted by Russia’s war

against Ukraine, as governments attempt to shield consumers and businesses from record

energy prices, accelerate the drive toward energy independence, bolster defense spending,

and respond to the influx of refugees.

18 NGEU is €750 billion in 2018 prices, which is equivalent to roughly €807 billion in current prices.
27

The ECB maintained a highly accommodative stance in 2021, with the key elements of its

crisis response package still in full force. Net asset purchases under its Pandemic

Emergency Purchase Program (PEPP) and Asset Purchase Program (APP) in July reached

the highest pace since June 2020, reflecting a commitment by the Governing Council to

conduct purchases “at a significantly higher pace than during the first months of the year”

in the second and third quarters of 2021. The pace of net purchases slowed as of endOctober, in line with a decision at the September 9 policy meeting that “favorable financing

conditions can be maintained with a moderately lower pace of net asset purchases under

the [PEPP] than in the previous two quarters.”19 In December, the ECB announced that

PEPP net purchases would slow further in the first quarter of 2022 and end in March 2022. 

With respect to its other tools, the ECB’s Targeted Longer-Term Refinancing Operations

(TLTROs), which had its last tranche in December 2021, continued to make funding

available to euro area lenders at interest rates as low as -1.0%, helping offset some of the

pressure on net interest rate margins from negative policy rates. While the recovery

gained momentum, so too did inflation, with headline inflation accelerating to 5.0% year

over year in December. Though some of the inflationary forces are likely transitory factors,

Russia’s war against Ukraine has added substantial new pressure to prices. In its March

projections, the ECB forecasts headline inflation of 5.1% in 2022 in its baseline scenario,

though a more severe scenario could see inflation at 7.1%. Despite this surge, the ECB

anticipates that inflation will return to around its target level by the end of its forecast

window in 2024.

The euro area current account surplus rose to 2.4% of GDP in 2021, from 1.9% in 2020. 

While supply chain disruptions and COVID-19 outbreaks continued to affect trade, the euro

area nevertheless saw increases in real exports of both goods and services in 2021 of

roughly 10% relative to 2020. Treasury assesses that in 2021, the euro area’s external

position was broadly in line with economic fundamentals and desirable policies. 

The euro depreciated by

7.5% against the dollar in

2021, with widening interest

rate differentials between the

United States and Europe,

supporting dollar strength.

The euro real effective

exchange rate depreciated by

3.5% over 2021, reflecting in

part rising inflation among

major trading partners. 

During the first four months

of 2022, the euro depreciated 6.9% against the dollar, as Russia’s war against Ukraine has

19 The Governing Council reiterated this stance in its October 28, 2021 decision. “Press Release: Monetary

policy decisions.” September 9, 2021. Available at: 

https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.mp210909~2c94b35639.en.html.

“Press Release: Monetary policy decisions.” October 28, 2021. Available at:

https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.mp211028~85474438a4.en.html.

80

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130

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21Jan-22

Indexed to 20Y Avg= 100

Euro: Exchange Rates

Bilateral vs. USD NEER REER

Sources: FRB, Bank for International Settlements
28

impacted the energy landscape and raised concerns about economic activity. In real

effective terms, the euro depreciated 2.2% during the first four months of 2022. The ECB

publishes its foreign exchange intervention and has not intervened in foreign exchange

markets since 2011. 

Germany

Germany’s economic recovery was faltering from continued COVID-related disruptions

even prior to Russia’s war against Ukraine. Although German economic activity started to

accelerate in the second quarter of 2021—driven by an increase in consumer spending,

industrial production, and increasing demand for German exports—ongoing pandemic

restrictions, supply chain disruptions, and high energy prices led to a contraction of -0.3%

of economic activity in the fourth quarter of 2021, pulling down overall 2021 GDP growth

to 2.9%. With Russia’s war creating new economic headwinds across Europe, the IMF’s

April WEO forecasts show German real GDP growth to decelerate to 2.1% in 2022; first

quarter growth was just 0.2%. The planned 2022 German federal budget and $109 (€100)

billion special fund for military modernization will extend Germany’s 2020-21 period of

greater utilization of its fiscal space, although the IMF expects the general government

deficit to narrow to 3.3% of GDP in 2022. German headline inflation continued to rise in

early 2022 largely due to energy prices and supply constraints. The increase in inflation

may already be weighing on consumer confidence, with inflation expectations continuing

to rise and consumer sentiment dropping markedly in March due to both inflation and

Russia’s war against Ukraine.

After narrowing somewhat in

2020 due to the impact of the

pandemic on global trade,

Germany’s current account

surplus increased to 7.6% for

the four quarters through

December 2021, as net

exports recovered faster than

domestic demand. Germany’s

bilateral goods and services

trade surplus with the United

States stood at $73 billion for

the four quarters through December 2021, up from $57 billion in the same period in 2020. 

Treasury assesses that in 2021, Germany’s external position was stronger than warranted

by economic fundamentals and desirable policies, with an estimated current account gap of

3.8% of GDP.

The German government took bold fiscal measures in response to COVID-19 and Russia’s

war against Ukraine, including the continued suspension of the national fiscal rules to allow

for new debt issuance. However, Germany still needs to improve its chronic spending

under-execution, which contributed to persistent fiscal surpluses pre-pandemic. Treasury

encourages the Scholz government to continue to deploy its substantial fiscal space,

-5

0

5

10

20082009

201020112012201320142015201620172018201920202021

Percent of GDP

Germany: Current Account Balance

Income Services Goods Current Account Balance

Source: Deutsche Bundesbank
29

including through strengthening efforts to combat climate change, enhance energy security,

and reinvigorate investment—which would help external rebalancing proceed at a

reasonable pace. 

Italy

Italy suffered one of the worst growth contractions in Europe in 2020, with lockdowns and

other restrictive measures resulting in a real GDP contraction of -9.0%. Despite facing

multiple waves of COVID-19 in 2021, Italian real GDP grew 6.6% last year, spurred by

increases in domestic demand, net exports, and public investment partially supported by

EU funding. The IMF projects that this recovery will slow significantly in 2022, with

expected economic growth dropping to 2.3% due in part to economic spillovers from

Russia’s war against Ukraine. To tackle the COVID-19 crisis in 2020-21, Italy passed six

fiscal packages totaling around $155 billion (€142 billion or 9% of GDP) in direct fiscal

stimulus and authorized up to $437 billion (€400 billion or 25% of GDP) in loan

guarantees, of which $266 billion (€248 billion) had been issued by end-2021. In part due

to these measures, the fiscal deficit reached 9.6% of GDP in 2020 and 7.2% in 2021,

pushing Italian government debt—already the second-highest in the EU—to over 150% of

GDP. 

Italy’s current account

surplus contracted to 2.5% of

GDP for the four quarters

through December 2021

(down from 3.8% of GDP

during the same period in

2020). The United States is

Italy’s third-highest export

destination after Germany

and France, and Italy’s trade

surplus with the United

States was $35 billion for the

four quarters through December 2021. Treasury assesses that in 2021, Italy’s external

position was weaker than warranted by economic fundamentals and desirable policies,

driven in part by the effect of demographics on national saving.

Italy’s persistently anemic growth and high debt load even prior to the pandemic

underscores the difficult road to economic recovery. Once immediate support measures

required by ongoing risks end, Italy should address longer-term structural issues and

inequalities. EU-level fiscal support—including Next Generation EU (NGEU) funding—

should help Italy recover from the pandemic crisis and improve the foundation for

achieving stronger future growth. As part of the NGEU, Italy is set to receive around $240

billion in grants and loans in the coming years and has already received its first

disbursement of around $31 billion. COVID-19 and economic spillovers from Russia’s war

against Ukraine have only further demonstrated the need for Italy to undertake

fundamental reforms to tackle deep-rooted structural rigidities and boost competitiveness. 

-4

-2

0

2

4

6 2008

200920102011201220132014201520162017

2018201920202021

Percent of GDP

Italy: Current Account Balance

Income Services Goods Current Account Balance

Sources: Ufficio Italiano dei Cambi, Banca d'Italia
30

In that vein, Treasury welcomes the Draghi government’s efforts to diversify its energy

supply and reform Italy’s public administration, judicial system, and tax system to help

raise long-term growth.

India

Since the onset of the global pandemic, India has faced three significant outbreaks of

COVID-19. India’s acute second wave weighed heavily on growth through the middle of

2021, delaying its economic recovery. However, economic activity rebounded strongly in

the second half of the year as India’s vaccination rollout accelerated. As of the end of 2021,

about 44% of India’s population was fully vaccinated. After contracting 7% in 2020, output

returned to pre-pandemic levels by the second quarter of 2021, with full-year 2021 growth

of 8%. Since the beginning of 2022, India has contended with a third major outbreak

driven by the Omicron variant, but the number of deaths and broader economic fallout has

been limited.

The Indian government continued to provide fiscal support for the economy against the

backdrop of the pandemic in 2021. The authorities estimate that the overall fiscal deficit

will reach 6.9% of GDP for the 2022 fiscal year,

20 which is higher than deficits prior to the

pandemic. The Reserve Bank of India (RBI) has kept its key policy rate unchanged at 4%

since May 2020, but in January 2021 the RBI began to gradually unwind the extraordinary

liquidity measures designed to support growth during the early part of the global

pandemic.

After recording a current

account surplus of 1.3% of

GDP in 2020, its first surplus

since 2004, India returned to

a current account deficit of

1.1% of GDP in 2021. The

return to a current account

deficit was driven by a sharp

deterioration in India’s trade

deficit, which widened to

$177 billion in 2021 from $95

billion the previous year. 

Goods imports rose particularly sharply in the second half of 2021 amid the economic

recovery and rising commodity prices, particularly energy prices, leading imports to

increase 54% year-on-year in 2021. India’s exports also rose in 2021, though at a lower

rate than imports, increasing 43%. India’s services trade surplus (3.3% of GDP) and

income surplus (1.3% of GDP) partially offset the wider goods trade deficit. Remittances

grew around 5% in 2021, reaching $87 billion, or 2.8% of GDP. Treasury assesses that in

2021, India’s external position was broadly in line with economic fundamentals and

desirable policies, with an estimated current account gap of 0.3% of GDP.

20 India’s fiscal year 2022 ended in March.

-15

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-5

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5

10

20082009201020112012201320142015201620172018201920202021

Percent of GDP

India: Current Account Balance

Income Services Good Current Account Balance

Source: Reserve Bank of India
31

India’s bilateral trade surplus with the United States has expanded significantly in the past

year. Between 2013 and 2020, India ran bilateral goods and services trade surpluses of

about $30 billion with the United States. In 2021, the goods and services trade surplus

reached $45 billion, a material increase from $34 billion in the four quarters through

December 2020. India’s bilateral goods trade surplus reached $33 billion (up 37%), while

the bilateral services surplus grew to $12 billion (up 29%) in 2021. The expansion has

been driven primarily by elevated U.S. demand, particularly for goods, as the U.S. economy

recovered strongly in 2021.

India has been exemplary in publishing its foreign exchange market intervention, both

monthly spot purchases and sales and net forward activity, with a two-month lag. RBI’s net

purchases of foreign exchange reached $41 billion, or 1.3% of GDP, in 2021. The RBI

intervenes frequently in both directions, and in 2021 the RBI purchased foreign exchange

on net in 7 of 12 months. The RBI made large monthly purchases in January and February

of 2021, followed by modest sales in the spring as a COVID-19 outbreak took hold. Net

purchases ticked back up during the summer but tapered off as the rupee came under

greater depreciation pressure against the U.S. dollar in the latter part of 2021.

RBI foreign exchange

purchases in recent years

have resulted in an elevated

level of reserves. As of

December 2021, foreign

exchange reserves totaled

$570 billion, equivalent to

18% of GDP and 209% of

short-term external debt at

remaining maturity.21 In the

2021 External Sector Report,

the IMF judged that India’s

reserves at the time stood at 197% of the IMF’s reserve adequacy metric as of end-2020.

21 Foreign exchange reserves were equivalent to 497% of short-term external debt at original maturity. Both

the remaining maturity and original maturity figures rely on short-term external debt data as of December

2021.

-20

-10

0

10

20

30

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Oct-21

Billion U.S. Dollars

India: FX Intervention

Net Spot Market Purchases Change in Net Fwds/Futures Net FXI

Source: Reserve Bank of India
32

Similar to many Asian

emerging market peer

currencies, the rupee

weakened against the U.S.

dollar over the course of

2021, depreciating by 1.9%. 

Rupee volatility was

pronounced during the first

half of 2021 as the economy

contended with the large,

second COVID-19 outbreak;

subsequently, the rupee

depreciated steadily against the dollar during most of the second half of the year. By

contrast, the rupee held up relatively well compared to the currencies of many India’s

regional trading partners—on a nominal effective and real effective basis, the rupee

appreciated 0.8% and 2.2% over 2021, respectively. 

The authorities should allow the exchange rate to move flexibly to reflect economic

fundamentals, limit foreign exchange intervention to circumstances of disorderly market

conditions, and refrain from further significant reserve accumulation. As the economic

recovery progresses, the authorities should continue to pursue structural reforms that can

help lift productivity and living standards, while supporting an inclusive and green

recovery.

Malaysia

Malaysia’s economy recovered gradually in 2021 with 3.1% real GDP growth, though

activity was weighed down through the middle of the year by a rapid resurgence of COVID19 cases. In response to the surge in cases, the authorities reimposed strict nationwide

containment measures, while allowing key economic sectors to continue operating. As a

result, sectors facing fewer restrictions, including the export-oriented manufacturing

sector, underpinned growth in 2021, whereas other sectors were slower to recover. 

Activity was particularly weak in contact-intensive industries, including tourism, and in the

agriculture sector, which faced labor shortages amid slow migrant flows. For 2022, the

authorities project stronger growth, in line with the IMF’s projection of 5.6% real GDP

growth, amid a resumption of domestic activities, further improvements in the labor

market, continued policy support, and an expansion in external demand.

The authorities have provided substantial policy support to buffer the shock from the

pandemic. After providing around 2.7% of GDP in COVID-related fiscal support in 2020,

the authorities in 2021 provided an additional $9.3 billion (2.6% of GDP) of fiscal

measures, including support for wage subsidies and direct transfers. They have also

indicated that some support measures will remain in place to facilitate Malaysia’s economic

recovery, budgeting another $5.5 billion (1.4% of GDP) in COVID-related support for 2022. 

After keeping a steady policy rate of 1.75% since the beginning of the pandemic, Bank

60

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100

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120

130

140

60

70

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130

140

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21

Jan-22

Indexed to 20Y Avg = 100

India: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
33

Negara Malaysia took its first step to tighten monetary policy in its scheduled policy

meeting in May, raising its policy rate 25 basis points.

Malaysia has consistently

maintained current account

surpluses over the last

several years, with the

current account registering a

3.8% of GDP surplus in 2021. 

Since the onset of the

pandemic, Malaysia’s goods

surplus has widened as

exports recovered faster than

imports on the back of

stronger global demand and a

sluggish domestic recovery. The uptick in the goods surplus has been offset by a wider

income deficit as earnings of foreign investors were buoyed by strong demand for

manufactured goods, as well as the wider services deficit amid still-subdued travel-related

receipts.

Treasury assesses that in 2021, Malaysia’s external position was broadly in line with

economic fundamentals and desirable policies. The IMF over the last decade has

consistently assessed Malaysia’s external position to be stronger than the level consistent

with medium-term fundamentals and desired policies.

Malaysia’s goods and services trade surplus with the United States reached $41 billion in

2021. Malaysia and the United States have strong supply chain linkages in key industries,

particularly electronics and related parts. Surging electronics exports helped push

Malaysia’s bilateral goods trade surplus to $41 billion in 2021. Conversely, Malaysia

engages in relatively limited bilateral services trade with the United States—about $4

billion in gross bilateral services trade flows in 2021—and bilateral services trade was

roughly balanced in 2021.

Malaysia has established a

history of two-way

intervention in the foreign

exchange market. Malaysia

does not publish data on its

foreign exchange

intervention; however, the

authorities have conveyed

credibly to Treasury that net

purchases of foreign

exchange in 2021 were $0.8

billion or 0.2% of

GDP. Foreign exchange

-8

-6

-4

-2

0

2

4

6

8 Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Oct-21

Billion U.S. Dollars

Malaysia: Estimated FX Intervention

Adj. Change in Gross Reserves Change in Net Fwd Book Est. Net FXI

Sources: Bank Negara Malaysia, U.S. Treasury estimates

-10

-5

0

5

10

15

20

25

20082009201020112012201320142015

201620172018201920202021

Percent of GDP

Malaysia: Current Account Balance

Income Services Goods Current Account Balance

Source: Department of Statistics Malaysia
34

reserves stood at around $103.1 billion in March 2022, up $3.4 billion compared to end2020. Reserves are broadly adequate according to standard adequacy metrics, including

that of the IMF.

Like many regional peer

currencies, the ringgit faced

downward pressure over

2021 amid a surge in COVID19 cases and weakened

economic outlook. On net,

the ringgit depreciated 3.8%

against the U.S. dollar over

2021 and depreciated 0.9%

and 1.2% on a nominal and

real effective basis,

respectively, over the same

period.

The authorities should continue to provide targeted fiscal policy support for vulnerable

populations and hard-hit sectors to support Malaysia’s economic recovery and reduce risks

of economic scarring and inequality. In addition, upgrades to the scale and coverage of

Malaysia’s social protection system would support external rebalancing while also

fostering an inclusive recovery. The authorities should continue to allow the exchange rate

to move to reflect economic fundamentals and limit foreign exchange intervention to

circumstances of disorderly market conditions, while avoiding excessive accumulation of

reserves.

Singapore

Singapore recovered strongly in 2021 with 7.6% real GDP growth, owing to effective

COVID-19 containment measures, a rebound in external demand, and robust domestic

consumption. Looking ahead, the authorities anticipate continued above-trend growth for

2022, in line with the IMF’s projection of 4.0% real GDP growth, supported both by

sustained external demand as well as recovery in domestic-oriented and travel-related

sectors as COVID-related restrictions are further relaxed.

After providing extraordinary fiscal policy support in 2020 to help offset the economic

shock from the pandemic, the authorities have shifted toward fiscal consolidation in their

last two budgets. The authorities’ fiscal year 2022 budget22 calls for the deficit to narrow

to 0.5% of GDP, from 0.9% of GDP the year prior. In addition to the wind down of COVIDrelated fiscal support, the narrower deficit reflects projected increases in both operating

revenues and investment returns (used in part to support the budget). The authorities are

maintaining plans to raise the goods-and-services tax from 7% to 9% over the next two

22 Singapore’s 2022 fiscal year is April 1, 2022 to March 31, 2023.

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90

100

110

120

130

70

80

90

100

110

120

130

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12

Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21Jan-22

Indexed to 20Y Avg = 100

Malaysia: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
35

years to help offset future health and other expenditure increases, though implementation

remains on hold for now due to rising price pressures.

The Monetary Authority of Singapore (MAS) has been one of the first central banks in the

region to start gradually tightening monetary policy. Amid accumulating external and

domestic cost pressures, MAS took its first step to tighten policy since the pandemic in its

scheduled policy meeting in October 2021. Subsequently, MAS again tightened monetary

policy in a surprise, off-cycle move in January 2022, and again in their regularly scheduled

policy meeting in April, citing increased cost pressures owing to recovering global demand

and persistent supply disruptions.

Singapore’s outsized current

account surplus averaged

17% of GDP over the last

decade, and reached 18.1% of

GDP in 2021, owing primarily

to a massive goods surplus,

offset in part by a sizable

income deficit. Treasury

assesses that Singapore’s

external position was

substantially stronger than

warranted by economic

fundamentals and desirable policies in 2021, with an estimated current account gap of

6.3% of GDP. The IMF in recent years has consistently assessed Singapore’s external

position to be substantially stronger than warranted by economic fundamentals and

desirable policies. Singapore’s long history of large current account surpluses has pushed

its net international investment position to around 260% of GDP, one of the highest levels

in the world.

Singapore’s bilateral goods and services trade deficit with the United States was $21 billion

in 2021, driven primarily by a deficit in services trade. Singapore has long run a bilateral

services deficit with the United States, and this deficit has widened in the last decade to

reach $15 billion in 2021. Key Singaporean services imports from the United States include

research and development, intellectual property, and professional and management

services. Singapore’s bilateral goods trade balance with the United States returned to a

deficit in 2021 of $6 billion, after registering a surplus in 2020 for the first time in two

decades, owing to a normalization of trade flows from the pandemic and a substantial

increase in fuel and commodity imports from the United States. The Singapore goods

deficit with the United States reflects in part Singapore’s role as a regional transshipment

hub, with some of Singapore’s imports from the United States ultimately intended for other

destinations in the region.

-20

-10

0

10

20

30

40

200820092010201120122013201420152016

20172018201920202021

Percent of GDP

Singapore: Current Account Balance

Income Services Goods Current Account Balance

Sources: Monetary Authority of Singapore, Department of Statistics
36

MAS uses the nominal

effective exchange rate of the

Singapore dollar (the

S$NEER) as its primary tool

for monetary policy and uses

foreign exchange

intervention to help manage

the S$NEER and implement

its policy. In October 2021

and April 2022, MAS

published data on

intervention covering the

first and second halves of 2021, respectively, indicating total net purchases of $29 billion in

foreign currency in 2021, equivalent to 7.3% of GDP. Official foreign exchange reserves

held by MAS registered $371 billion (93% of GDP) at end-March 2022, after the authorities

transferred $55 billion to GIC, one of Singapore’s sovereign wealth and investment funds, in

March 2022. Absent the transfer, reserves as of end-March would have grown by $67

billion relative to end-2020. In addition to the reserves held by MAS, Singapore’s

government also has access to substantial official foreign assets managed by GIC and a

second sovereign wealth and investment fund, Temasek. 

The Singapore dollar

depreciated modestly over

2021 against the U.S. dollar,

in line with many regional

currencies, as markets

became optimistic about U.S.

economic growth. On net, the

Singapore dollar depreciated

2.3% against the U.S. dollar

over 2021. Conversely, the

Singapore dollar showed

relative strength in 2021

against the currencies of many other trading partners as Singapore’s economic growth

outperformed compared to many regional peers. Consequently, Singapore’s NEER and

REER appreciated 0.4% and 0.9%, respectively, in 2021. These trends have extended into

2022, with the Singapore dollar depreciating 2.2% against the U.S. dollar since the

beginning of the year through-end-April.

The authorities should consider several fiscal and monetary policies to address Singapore’s

large and persistent external imbalances and the public sector’s large net foreign asset

position. Further appreciation of the nominal and the real effective exchange rate over the

medium term, consistent with economic fundamentals, should continue to play a role in

facilitating external rebalancing. The authorities should also loosen fiscal policy on a

structural basis, including by reconsidering fiscal policy rules that drive a tighter than

warranted fiscal stance across the economic cycle and tax policies that may dampen

-15

-10

-5

0

5

10

15

20

25

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Oct-21

Billion U.S. Dollars

Singapore: Estimated FX Intervention

Adj. Change in Gross Reserves Change in Net Fwd Book Est. Net FXI

Sources: Monetary Authority of Singapore, U.S. Treasury estimates

80

90

100

110

120

130

80

90

100

110

120

130

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21Jan-22

Indexed to 20Y Avg = 100

Singapore: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
37

domestic demand. A sustained expansion in the provision and coverage of social services

would help reduce incentives for private saving and support stronger consumption. In

addition, reforms to the pension system, including reducing the high rates for mandatory

contributions to the government pension scheme and managing official assets in a way that

transfers more wealth to Singaporean households, would have similar benefits in

strengthening domestically driven growth. Consistent with the government’s stated goals,

substantial new infrastructure investment could help build resilience to threats from

climate change while also supporting greater domestic demand. 

Thailand

Thailand’s economic recovery has lagged regional peers, with real GDP expanding by 1.6%

in 2021 following a 6.1% contraction in 2020. A rapid acceleration in local transmission of

COVID-19 starting in April 2021 and peaking in mid-August prompted the authorities to

impose increasingly stringent restrictions on domestic travel and economic activity. These

restrictions helped to control the spread of the virus but weighed on domestic demand,

while external demand remains subdued due to ongoing disruptions to the tourism sector. 

In response to these developments, the authorities accelerated their vaccine procurement

timeline, authorized an additional 3.1% of GDP in emergency government borrowing in a

supplemental 2021 fiscal package (on top of 6.4% of GDP in emergency borrowing

authorized earlier in 2021), and extended forbearance for pandemic-affected firms and

households struggling to meet debt service obligations. These efforts supported a sharp

acceleration in economic activity in the final quarter of 2021, helping Thailand weather the

rapid transmission of the Omicron variant and providing a significant boost to annual

output for 2021. GDP growth is broadly projected to accelerate further in 2022, although

headwinds from the global commodity price shock have tempered expectations somewhat. 

The IMF currently projects the economy to expand by 3.3% in 2022 as activity restrictions

ease and tourism recovers.

Thailand recorded a current

account deficit of 2.1% of

GDP in 2021, contrasting

sharply with the elevated

current account surpluses

Thailand ran in the five years

before the COVID-19

pandemic. This large swing

in the current account has

been due to a rapid widening

deficit in the services balance,

to 5.9% of GDP in 2021 from

2.9% in 2020, after averaging a surplus of 4.6% of GDP between 2015 and 2019. The steep

drop in tourism receipts has been the primary contributor to the swing in the services

balance, but rising payments for freight transportation linked to a sharp increase in global

freight costs have also contributed. Thailand’s goods trade surplus narrowed modestly to

-10

-5

0

5

10

15

20082009201020112012201320142015201620172018201920202021

Percent of GDP

Thailand: Current Account Balance

Income Services Goods Current Account Balance

Sources: Bank of Thailand, National Economic & Social Development Board
38

7.9% of GDP last year from 8.2% of GDP in 2020, as the recovery in imports outpaced the

rise in exports. Treasury assesses that in 2021, Thailand’s external position was broadly in

line with economic fundamentals and desirable policies, with an estimated current account

gap of 0.1% of GDP.23

Thailand’s bilateral goods and services trade surplus with the United States widened to $33

billion in 2021, an increase of $7 billion from 2020. Thailand’s merchandise exports to the

United States grew by more than 25% during this period, led by the sustained growth of

electronic and electric equipment exports. During the same period, goods imports from the

United States increased by 13%, primarily due to rising manufactures imports, including

chemicals and computers and electronic products. 

Thailand intervenes

frequently in foreign

exchange markets. 

Intervention activity was

skewed heavily toward

purchases of foreign currency

between 2016 and 2020, a

period that generally

coincided with appreciation

pressures on the baht. 

Conversely, the baht faced

sustained depreciation

pressure for much of 2021. The Thai authorities have credibly conveyed to Treasury that

net sales of foreign exchange were 2.2% of GDP in 2021. That figure is equivalent to about

$11 billion.

The baht depreciated by

9.9% against the dollar in

2021, underperforming

major regional peers. Over

the same period, the baht

depreciated by 7.5% and

8.7% on a nominal effective

and real effective basis,

respectively. The baht’s

depreciation trend occurred

amid the large swing in

Thailand’s current account, a

record surge in resident portfolio capital outflows (facilitated by recent easing of

restrictions on resident investment abroad), and a shift in investor sentiment tied to the

substantial increase in Thailand’s COVID-19 caseload in 2021. 

23 The estimated current account gap is subject to higher-than-usual uncertainty given the large swing in the

services trade balance and associated uncertainty about the appropriate adjustments to account for

pandemic-related factors.

-8

-6

-4

-2

0

2

4

6

8

10

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Oct-21

Billion U.S. Dollars

Thailand: Estimated FX Intervention

Adj. Change in Gross Reserves Change in Net Fwd Book Est. Net FXI

Sources: Bank of Thailand, U.S. Treasury estimates

90

100

110

120

130

90

100

110

120

130

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18

Jan-19Jan-20Jan-21Jan-22

Indexed to 20Y Avg = 100

Thailand: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
39

The authorities should sustain macroeconomic policy support until a strong, self-sustaining

recovery takes hold, and should take steps to durably strengthen the social protection

system, which also will help mitigate incentives for precautionary saving. Thailand should

allow the exchange rate to move flexibly in line with economic fundamentals and, when

intervening, continue to do so in a broadly symmetric manner when facing either

appreciation or depreciation pressures. 

 

Mexico

Following an 8.2% contraction in 2020, Mexico’s economy grew by 4.8% in 2021, but the

recovery stalled in the second half of the year, leaving real per capita GDP 5% below prepandemic levels, severely lagging regional peers’ recoveries. Investment, in particular,

remains depressed at 15% below its level prior to the current administration’s tenure,

which began in late 2018. Commodity price shocks, following Russia’s war against Ukraine,

will add further pressure to stubbornly-high inflation: core price increases accelerated

from 4.7% in 2021 to 6.9% year-on-year in March 2022—well outside of the Bank of

Mexico’s (Banxico’s) target band of 3±1%. In response to rising inflation, Banxico has

raised its policy rate by 300 basis points since June 2021 and foreshadowed further hikes

to keep medium-term expectations anchored, which will weigh on 2022 growth.

Mexico’s current account

balance returned to deficit

(0.4 % of GDP) in 2021

following a temporary

surplus in 2020. Despite

Mexico’s tepid recovery in

2021, import growth

outpaced export growth

throughout the year. A 20%

appreciation of the real

effective exchange rate from

its pandemic low also

supported import demand. In contrast to the significant reversion of Mexico’s global

balance on goods and services, Mexico’s bilateral goods and services surplus with the

United States (the second largest after China) in 2021 was virtually unchanged from 2020

at $112 billion.

A gradual recovery in domestic demand, along with rising food and commodity prices, will

tend to push Mexico’s current account balance lower this year toward its historical trend of

moderate deficits, but continued growth in record remittances ($52 billion or 4.0% of GDP

in 2021) and a sluggish growth outlook may limit the extent of external adjustment. The

IMF forecasts a current account deficit of 0.6% of GDP for 2022, gradually increasing to a

deficit of 1.1% by 2027. Treasury assesses that in 2021, Mexico’s external position was

broadly in line with economic fundamentals and desirable policies.

-3

-2

-1

0

1

2

3

4

5 2008

20092010201120122013201420152016

20172018201920202021

Percent of GDP

Mexico: Current Account Balance

Income Services Good Current Account Balance

Sources: Banxico, INEGI, Haver
40

The Mexican peso is a freely

traded currency. The real

effective peso has largely

tracked Mexico’s terms of

trade over the past 15 years. 

After depreciating

significantly early in the

COVID-19 pandemic, the peso

has regained most of its

value: relative to end-2019,

the peso in April 2022 was

7.4% weaker against the

dollar and 0.9% weaker on a real effective basis. 

Mexico has intervened in foreign exchange markets only minimally since 2017. Almost all

of its interventions over the past decade have been foreign exchange sales that have

strengthened the currency. Mexico is open to capital flows, has refrained from capital flow

management measures, and has a highly liquid currency, allowing the peso to act as an

important shock absorber for Mexico. As of March 2022, Mexico has $210 billion in foreign

exchange reserves, together with $62 billion in available swap and credit lines,24 to add to

its external buffers. In its latest External Sector Report, the IMF assessed that Mexico’s

foreign exchange reserves levels are adequate across a range of metrics, with reserves

reaching 129% of the IMF’s adequacy metric as of end-2020.

Mexico is timely in publishing

its foreign exchange market

intervention, disclosing

monthly purchases and sales

with about a one-week lag

and providing intervention

data from 1996 onwards. 

Banxico typically conducts its

foreign exchange

transactions with the private

sector under rules-based,

transparent programs to

counter volatility or accumulate reserves.25 The country’s inflation-targeting monetary

policy framework and flexible exchange rate regime remain crucial pillars of the

macroeconomic framework for Mexico’s resilience to shocks.

24 These comprise a $50 billion IMF Flexible Credit Line and swap lines under the North American

Framework Agreement (NAFA) with the Federal Reserve and U.S. Treasury of $3 billion and $9 billion,

respectively.

25 See “Reserves Management and FX Intervention in Mexico” by Banxico Deputy Governor Javier Guzmán

Calafell, available at https://www.banxico.org.mx/publicaciones-y-prensa/discursos/%7BEA88E47F-8EC7-

14F7-9B19-B4649E0EE3E6%7D.pdf.

50

60

70

80

90

100

110

120

130

140

50

60

70

80

90

100

110

120

130

140

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21

Jan-22

Indexed to 20Y Avg = 100

Mexico: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements

-4

-3

-2

-1

0

1

2 Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Oct-21

Billion U.S. Dollars

Net Spot Market Intervention

Change in Nondeliverable Forward Book

Sources: Banxico, U.S. Treasury estimates 

Mexico: FX Intervention
41

Deteriorating structural policies will continue to weigh on Mexico’s growth for the

foreseeable future. The IMF expects growth to decelerate to 2.0% in 2022, which would

leave the economy close to 1.8% below its level in 2019. Mexico’s efforts to increase the

market dominance of loss-making state energy firms displace public resources from

essential spending and discourage investment in renewable energy that would reduce user

costs and free fiscal space for more productive investment and social protection. Policies

outside the energy sector that have led to major project cancelations, or have otherwise

displaced the private sector, further threaten to delay the recovery and reduce Mexico’s

long-term growth potential by perpetuating a trend of private sector under-investment.
42

In-Depth Analysis

Taiwan

Taiwan’s real GDP grew by 6.4% in 2021, up from 3.4% in 2020. The external sector, as

well as an increase in fixed asset investment, drove growth in 2021. Taiwan tightly

managed the COVID-19 pandemic, successfully containing an outbreak that took place in

mid-2021. The authorities complemented public health measures with targeted fiscal relief

to offset the effects of the pandemic, including expanded unemployment benefits and direct

transfers to impacted households. Taiwan passed its fifth special budget for pandemic

relief in December 2021, bringing cumulative COVID-related fiscal spending in 2021 to $15

billion (1.9% of GDP). Monetary authorities kept policy accommodative throughout the

pandemic and began policy normalization with a 25 bp hike in March 2022.

Taiwan’s current account

surplus was $115 billion

(14.8% of GDP) in 2021, up

from $95 billion (14.2% of

GDP) a year prior. The

current account surplus was

driven by Taiwan’s $89

billion goods trade surplus

(11.4% of GDP), rising from

$75 billion (11.1% of GDP) a

year prior. Goods exports

continued to surge due to

pandemic-induced shifts in patterns of global demand and the ongoing global

semiconductor shortage, as electrical machinery exports rose to $219 billion, up 25% from

a year prior. Import growth was modest, driven in part by Taiwan’s sluggish recovery of

private consumption. Imports may increase and the overall goods surplus may deteriorate

in 2022 amid rising prices of imported commodities and a potential easing of global supply

chain bottlenecks. 

Taiwan’s services balance stood at $12.5 billion (1.6% of GDP) in 2021, following a neardecade long strengthening trend that began after a record services deficit of 3.7% of GDP in

2012. Nevertheless, Taiwan’s transition to a surplus economy on the services front over

the last two years is the result of pandemic distortions, namely the decline in overseas

tourism spending along with an increase in freight transport service exports. Taiwan’s

-5

0

5

10

15

20

200820092010201120122013201420152016

20172018201920202021

Percent of GDP

Taiwan: Current Account Balance

Income Services Good Current Account Balance

Sources: Taiwan central bank, Haver
43

services surplus is likely to moderate as international travel restrictions are loosened and

shipping constraints moderate.

Treasury assesses that in 2021, Taiwan’s external position was substantially stronger than

warranted by economic fundamentals and desirable policies, with an estimated current

account gap of 7.4%. 

Taiwan recorded a $40 billion bilateral trade surplus with the United States in 2021, up

from $28 billion in 2020. The trade surplus was composed entirely of goods trade and was

driven by semiconductors and electronic goods exports. Taiwan’s bilateral services trade

with the United States balanced to roughly zero in 2021, from a $3 billion deficit a year

before.

The New Taiwan Dollar

(TWD) strengthened steadily

throughout 2021,

appreciating 1.2% against the

dollar and 3.6% on a real

effective basis, supported by

Taiwan’s very large external

surplus. Taiwan’s exchange

rate depreciated sharply in

February 2022, driven by

geopolitical uncertainty

associated with Russia’s war

against Ukraine, and rising commodity prices, and has since depreciated 5.7% against the

dollar since the beginning of the year through April 2022. Large portfolio equity outflows

moderated appreciation pressures throughout 2021, while the acceleration of equity

outflows in the wake of Russia’s war against Ukraine drove significant TWD depreciation. 

The stated policy of the

central bank is to maintain a

“managed float” exchange

rate, in principle determined

by market forces but with

flexibility to maintain an

orderly foreign exchange

market. The central bank

publicly disclosed $9.1 billion

(1.2% of GDP) in foreign

exchange purchases in 2021,

$8.7 billion of which occurred

in the first half the year. Treasury estimates the majority of these purchases occurred in

January 2021, after which Taiwan significantly scaled back its purchases or sold foreign

exchange. Taiwan publishes its data on foreign exchange intervention on a semi-annual

basis, with a three-month lag.

80

90

100

110

120

80

90

100

110

120

Jan-07Jan-08Jan-09Jan-10

Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21Jan-22

Indexed to 20Y Avg = 100

Taiwan: Exchange Rates

Bilateral vs. USD NEER REER

Sources: FRB, Bank for International Settlements

-2

0

2

4

6

8

10

12

14

16

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Oct-21

Billion U.S. Dollars

Taiwan: Estimated FX Intervention

Sources: Taiwan central bank, U.S. Treasury estimates
44

Treasury conducted enhanced analysis of Taiwan in its April 2021 and December 2021 FX

Reports and began enhanced bilateral engagement in May 2021.26 In May 2021, Treasury

commenced enhanced bilateral engagement with Taiwan in accordance with the 2015 Act. 

These productive discussions have helped develop a common understanding of the policy

issues related to Treasury’s concerns about Taiwan’s currency practices. Treasury

continues to engage closely with Taiwan’s authorities.

Vietnam

After successfully keeping COVID-19 case counts contained at very low levels over the first

year of the pandemic, Vietnam was hit by a lengthy COVID-19 outbreak which began in

April 2021. The authorities responded to the outbreak with severe movement restrictions

and lockdown measures, which sharply curbed production in the country’s southern

manufacturing hub. Vietnam’s economy contracted by 6.2% year-on-year in the third

quarter of 2021, the worst quarterly decline since the data release began in 2000. The

authorities responded by lifting some restrictions and shifting from a zero-COVID policy to

a “new normal” in which businesses and households co-exist with the virus. The

government also quickly ramped up the national vaccination effort and by December 2021

about 70% of the population was fully vaccinated. As a result, economic activity bounced

back sharply in the fourth quarter of 2021, with quarterly GDP up 5.2% year-on-year, and

factory operations in the industrial hub had broadly returned to normal levels by early

2022. Full-year 2021 growth reached 2.6%, down slightly from 2.9% in 2020. 

Starting in February 2022, COVID-19 cases accelerated rapidly due to an outbreak of the

Omicron variant. Unlike in previous surges, however, severe cases and deaths have

remained contained, and high-frequency measures suggest that economic activity has been

holding up. As of mid-April, it appears Vietnam passed the peak of the outbreak. The IMF

forecasts real GDP to grow by 6% in 2022.

Despite facing much larger outbreaks, the government provided relatively less pandemicrelated fiscal support in 2021 compared to the prior year. COVID-related fiscal measures

totaled 4.5% of GDP in 2020; by comparison, announced measures in 2021 totaled 2.5% of

GDP, of which only around 1.8% of GDP was ultimately delivered due to implementation

challenges. As of end-2021, Vietnam’s debt-to-GDP ratio was estimated at 44%, up slightly

from its end-2019 level of 43% but still well below the 65% debt ceiling set by the National

Assembly.

SBV maintained its accommodative monetary posture in 2021, keeping its benchmark

policy rate at 4% and urging commercial banks to reduce or waive fees for firms negatively

impacted by the pandemic. SBV also continued forbearance measures on loans issued in

the wake of the April 2021 outbreak. With forbearance measures in place, non-performing

26 Report to Congress: Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United

States, U.S. Department of the Treasury, Office of International Affairs, pp. 46-48 (December 2021), available

at https://home.treasury.gov/system/files/206/December-2021-FXR-FINAL.pdf
45

loans have remained less than 10% of banking sector assets, though the full impact of the

pandemic on asset quality may become apparent only as measures are lifted.

The pandemic had a major

impact on Vietnam’s balance

of payments in 2021. 

Vietnam recorded a current

account deficit of 1.1% of

GDP in 2021, contrasting

sharply with the surplus of

3.6% of GDP that Vietnam ran

in 2020. Prior to 2021,

Vietnam had recorded

current account surpluses for

three consecutive years amid

a rising goods trade surplus. The 2021 swing into deficit was driven primarily by the goods

balance, with merchandise imports growth (26% year-on-year) outpacing merchandise

exports (19% year-on-year). The deteriorating goods trade balance was associated with

the major export slowdown due to Vietnam’s lockdown measures, while imports expanded

over the year largely reflecting rising import prices due to higher commodity price and

shipping costs while internal demand remained robust.

Vietnam posted an overall services trade deficit of $16 billion in 2021 — widening from

$12.1 billion in 2020 — as services exports continued to be deeply affected by foreign

travel restrictions and the related lack of tourism. The income deficit was relatively stable

in 2021, as the primary income deficit remained steady at $16 billion while the secondary

income surplus grew slightly to $10.2 billion. Remittances were resilient and are estimated

to have contributed about $18 billion to the current account in 2021.

Treasury assesses that in 2021, Vietnam’s external position was stronger than warranted

by economic fundamentals and desirable policies, with an estimated current account gap of

1.4% of GDP. 

Vietnam’s bilateral trade surplus with the United States has expanded dramatically in

recent years, primarily driven by growth in goods trade. In the four quarters through

December 2021, the bilateral goods trade surplus reached $91 billion, compared to $70

billion in the four quarters through December 2020. Vietnam now has the third largest

goods surplus with the United States. Since the beginning of the pandemic in 2020,

electronics and machinery have become the key drivers of Vietnam’s export growth, as

work-from-home practices and social distancing shifted external demand — including from

the United States — from low-tech products to more advanced goods. As with exports to

other regions, goods exports to the United States slowed during Vietnam’s lockdown in the

third quarter of 2021, but subsequently rebounded by the end of the year. Vietnam has

modest bilateral services trade with the United States and has long run a small bilateral

services trade deficit. In the four quarters through December 2021, that services deficit

was $1.4 billion.

-15

-10

-5

0

5

10

15

2008200920102011201220132014201520162017201820192020

2021

Percent of GDP

Vietnam: Current Account Balance

Income Services Good Current Account Balance

Sources: IMF BOP statistics, State Bank of Vietnam
46

Vietnam does not publish

data on its foreign exchange

intervention. The authorities

have conveyed credibly to

Treasury that net purchases

of foreign exchange in the

four quarters through

December 2021 were about

2.8% of GDP. That figure is

equivalent to about $10

billion. Purchases in 2021

were concentrated at the

beginning of the year in January and February and net purchases largely tapered off in the

second half of the year, particularly after the July 2021 agreement between the SBV and

Treasury was reached. While net purchases exceeded 2% of GDP over the year, the

authorities have credibly conveyed that net purchases were undertaken in fewer than 8 of

12 months. In this context, and given the progress the authorities have made thus far in

addressing Treasury’s concerns, Treasury does not assess Vietnam to have breached the

criterion for “persistent, one-sided” intervention in 2021.

Headline foreign exchange reserves increased about $13 billion over the 12 months

through December 2021 to $107 billion. The continued build-up of reserves in recent

years has brought Vietnam’s reserves into the range the IMF considers adequate based on

its reserve adequacy metric for fixed exchange rate regimes.27

Since January 2016, the SBV’s

exchange rate policy has been

to allow the dong to float +/-

3% against the U.S. dollar

relative to the central

reference rate of the trading

band. The central reference

rate is reset daily based on

the movements of a basket of

currencies, among other

factors. The dong spot rate

against the dollar generally

appreciated over 2021, with bilateral appreciation peaking at 2.1% in mid-November. The

dong has subsequently been more volatile, and as of end-April the dong stood 0.7%

stronger against the dollar compared to end-2020 (and was down 0.8% in April since the

beginning of 2022). On net, the dong appreciated 4.6% and 3.8% over 2021 on a nominal

effective basis and real effective basis, respectively.

27 Reserve adequacy would be higher if assessed on the basis of the IMF’s reserve adequacy metric for floating

exchange rate regimes.

-2

-1

0

1

2

3

4

5

6 Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Oct-21

Billion U.S. Dollars

Vietnam: Estimated FX Intervention

Sources: State Bank of Vietnam, U.S. Treasury estimates

70

80

90

100

110

120

130

70

80

90

100

110

120

130

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21Jan-22

Indexed to 20Y Avg = 100

Vietnam: Exchange Rates

Bilateral vs. USD REER NEER

Sources: Vietcombank, JP Morgan
47

Treasury conducted enhanced analysis of Vietnam in its December 2020, April 2021, and

December 2021 FX Reports. In early 2021, Treasury commenced enhanced bilateral

engagement with Vietnam in accordance with the 2015 Act.28 As a result of discussions

through the enhanced engagement process, Treasury and the State Bank of Vietnam (SBV)

reached agreement in July 2021 to address Treasury’s concerns about Vietnam’s currency

practices. Treasury continues to engage closely with the SBV to monitor Vietnam’s

progress in addressing Treasury’s concerns and is thus far satisfied with progress made by

Vietnam. 

Enhanced Analysis Under the 2015 Act

Switzerland

Treasury conducted enhanced analysis of Switzerland in its December 2020 and April 2021

FX Reports and in-depth analysis in its December 2021 Report. In early 2021, Treasury

commenced enhanced bilateral engagement with Switzerland in accordance with the 2015

Act.29 Since Switzerland meets all the thresholds for all three criteria under the 2015 Act

during the period covered by this Report, an enhanced analysis of recent economic

developments is provided below, along with an update on Treasury’s enhanced bilateral

engagement with the Swiss authorities.

While Switzerland was hit early and hard by the COVID-19 pandemic, economic growth

began to improve in the second half of 2020. Increased case counts over the winter led to

renewed restrictions to combat COVID-19 at the start of 2021 and a 0.5% quarter-overquarter contraction in real GDP activity in the first quarter. A relaxation of virus

restrictions and strong manufacturing and service sector activity led to a resumption of

growth, and the economy grew by 3.7% in 2021 overall.

Uncertainty over the outlook remains high given the continued spread of COVID-19

variants and Russia’s war against Ukraine and associated adverse spillovers including

inflationary pressures and refugee flows. Thus far the war in Ukraine has primarily

affected the Swiss economy through an increase in commodity prices, which is likely to

28 Report to Congress: Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United

States, U.S. Department of the Treasury, Office of International Affairs, pp. 48-55 (Dec. 2020), available at 

https://home.treasury.gov/system/files/206/December-2020-FX-Report-FINAL.pdf, and Report to Congress:

Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, U.S. Department

of the Treasury, Office of International Affairs, pp. 47-50 (Apr. 2021), available at

https://home.treasury.gov/system/files/206/April_2021_FX_Report_FINAL.pdf.

 

29 Report to Congress: Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United

States, U.S. Department of the Treasury, Office of International Affairs, pp. 48-55 (Dec. 2020), available at

https://home.treasury.gov/system/files/206/December-2020-FX-Report-FINAL.pdf, and

Report to Congress: Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United

States, U.S. Department of the Treasury, Office of International Affairs, pp. 50-53 (Apr. 2021), available at

https://home.treasury.gov/system/files/206/April_2021_FX_Report_FINAL.pdf.

Report to Congress: Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United

States, U.S. Department of the Treasury, Office of International Affairs, pp. 42-45 (Dec. 2021), available at

https://home.treasury.gov/system/files/206/December-2021-FXR-FINAL.pdf
48

increase companies’ production costs and constrain consumption. The Swiss National

Bank’s (SNB) baseline scenario for 2022 is GDP growth of 2.5%, slightly higher than the

IMF’s forecast of 2.2%.

Government employment assistance has helped to limit unemployment and bolster

consumer spending, with the unemployment rate averaging 3.0% in 2021. Since the

beginning of the COVID-19 crisis, the IMF estimates that Switzerland’s COVID-related fiscal

response amounted to up to 10% of GDP, including both direct and indirect measures,

although less than half of the funds made available had been used by the end of 2021. Even

with relatively large announced fiscal stimulus, Switzerland’s general government deficit

only reached 3.0% in 2020 (significantly smaller than in neighboring countries) and

subsequently narrowed to 0.7% in 2021. The defeat of a revised CO2 law in a June 13, 2021

referendum, which if passed, would have helped Switzerland to cut CO2 emissions, also

limits the potential for an increase in fiscal spending to meet climate targets in the near

term, although the authorities are advancing emissions-reductions actions through

extending laws on targets through 2024 and will revise proposals for 2025-2030. 

Higher inflation in trading

partners and expected

monetary tightening in other

European economies and the

United States eased

pressures on the franc in

2021. The Swiss franc

depreciated 3.3% against the

dollar and appreciated 4.5%

against the euro. On a

nominal effective and real

effective basis, the Swiss

franc appreciated by 1.5% and depreciated 1.9%, respectively, over the same period. 

However, the Swiss National Bank has pledged to intervene in currency markets to curb an

excessive rise in the franc.

The Swiss authorities have a

history of restrained

macroeconomic

management, particularly a

fiscal policy approach that

has prioritized debt

reduction over the last two

decades. Moreover, the

country’s highly competitive

corporate tax system has

made Switzerland a

destination for multinational

enterprises, contributing to Switzerland’s outsized role in some high value-added global

70

80

90

100

110

120

130

140

70

80

90

100

110

120

130

140

Jan-07Jan-08Jan-09

Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21Jan-22

Indexed to 20Y Avg = 100

Switzerland: Exchange Rates

Bilateral vs. USD NEER REER

Sources: FRB, Bank for International Settlements

-10

-5

0

5

10

15

20082009201020112012201320142015201620172018201920202021

Percent of GDP

Switzerland: Current Account Balance

Income Services Goods Current Account BalAnce

Sources: Swiss National Bank, Haver
49

industries (e.g., pharmaceuticals and merchanting).

30 These factors have contributed to

persistent, and often extremely large, current account surpluses during recent decades. In

2021 the current account surplus rebounded to 9.3% of GDP, following an unusually small

surplus of 2.7% of GDP during 2020.

31 The 2021 current account surplus was almost

entirely due to higher exports of goods and merchanting, with an increase in foreign

demand for watches, precision instruments, and pharmaceuticals. Despite the large recent

current account surpluses, Switzerland’s net international investment position declined

relative to GDP from 108% in 2020 to 90% in 2021, making it a smaller net lender to the

rest of the world when compared to the size of its economy.32 

Switzerland’s tight fiscal policy is a result, in part, of its federal “debt brake” rule that calls

for a structural fiscal balance on an ex-ante basis, and in the case of ex post spending

overruns, requires offsetting structural surpluses in the following years. The federal debt

brake rule is reinforced further by separate fiscal rules implemented by Swiss cantons,

which vary substantially. The federal debt brake rule’s design and implementation tend to

skew towards tighter fiscal policy than warranted, due to consistently conservative

forecasting of structural revenue and under-execution of expenditures. Switzerland ends

almost each year with a larger budget surplus than planned, and Switzerland has seen

significant debt reduction since implementing the debt brake rule, rather than the original

intent of debt stabilization. In addition, the rule is applied asymmetrically, as it mandates

an offset requirement in case of ex post overspending, but not for ex post underspending. 

Due to these factors, Switzerland’s fiscal policy has consistently overperformed the rule’s

objective, thereby weighing on economic growth, complicating efforts to maintain positive

inflation, and contributing to external surpluses. In response to the COVID-19 crisis,

however, the authorities have put forward for Parliamentary debate a measure to utilize

profits of the SNB and extend the timeframe for reduction of the remainder of COVIDrelated debt until 2035. This would avoid any expenditure cuts or measures to increase tax

revenue. The Swiss have also undertaken measures to limit spending underruns in the

future.

In addition to consistent government saving, other structural factors play a role in

Switzerland’s historically large current account surpluses, including high per capita

income; a large share of prime-aged savers and an aging population; a high household

savings rate, which is almost double the advanced economy average per OECD data;

relatively limited domestic investment opportunities; measurement issues; and a large

positive net international investment position, for which returns further raise the income

balance. Treasury assesses that in 2021, Switzerland’s external position was stronger than

30 Anecdotal evidence from the Swiss authorities suggests that pharmaceuticals and merchanting may be

insensitive to exchange rate changes, and increased trade in these sectors can potentially lead to increased

current account balances even when exchange rates appreciate.

31 At the time of the December 2021 Report, the 2020 current account surplus totaled just 1.2% of GDP.

32 This decline reflects valuation effects.
50

warranted by economic fundamentals and desirable policies, with an estimated current

account gap of 1.7% of GDP.33

Increased public investment would lower government net saving, help Switzerland meet its

long-term challenges associated with an aging population, and help rebalance the policy

mix, easing pressure on monetary policy. The high level of household saving could also be

addressed via amending the pension system to reduce barriers to working longer,

equalizing and then raising male and female retirement ages, and continuing efforts to

contain rising healthcare costs. While Switzerland is considering measures to address

some of these challenges, it is unclear whether any will be implemented in the near term as

policy making often requires approval through referendum. 

Switzerland’s bilateral goods and services trade surplus with the United States declined to

$21 billion in 2021 from $36 billion in 2020. Switzerland’s goods trade surplus with the

United States declined to $39 billion in 2021, versus $57 billion in 2020. Switzerland

maintains a large goods trade surplus with the United States, but this traditionally has been

mirrored largely by a services trade deficit. Switzerland’s bilateral services trade deficit

with the United States stood at $18 billion in 2021, down slightly from $21 billion in 2020. 

Until 2020, the United States’ trade deficit with Switzerland in recent years had been closer

to balance when including services data. Part of the increase in the trade deficit over the

past two years compared to previous years is attributable to large gold exports to the

United States that continued well into the pandemic, while services imports from the

United States did not increase by the same magnitude.

Switzerland is a small, open economy with significant exposure to external factors, and

exchange rate movements can often have a major impact on inflation. The Swiss franc has

also long been a safe haven currency that investors acquire during periods when global risk

appetite recedes, or financial volatility accelerates, which can pose challenges for Swiss

macroeconomic policymakers. The Swiss franc is a managed-floating currency, and the

SNB sets monetary policy with the aim of keeping inflation stable. In times of heightened

regional and global risk, the large safe haven inflows can put considerable appreciation

pressure on the franc, and sustained appreciation can weigh on domestic inflation.

Over the last 15 years, the franc has been subject to notable pressures from large swings in

global risk appetite, particularly emanating from the global financial crisis, the euro area

sovereign debt crisis, and the COVID-19 pandemic. The SNB has employed a range of tools

to try to offset appreciation pressure on the franc and limit negative impacts on inflation

33 The estimated current account gap primarily reflects the effect of Switzerland’s large net foreign asset

position, in particular its relatively large stock of official foreign exchange reserve holdings, on the path of

Switzerland’s current account over the medium term. Pandemic-related factors, specifically adjustments for

temporarily high levels of pharmaceutical and gold exports, partially offset this effect.
51

and domestic growth. Since

the start of the COVID-19

pandemic, for instance, the

SNB has maintained negative

interest rates to limit franc

appreciation and combat

deflationary risks. As the

interest rate is at the effective

lower bound and with limited

space for quantitative easing

due to a shallow market for

debt security issuance,

foreign exchange intervention becomes the remaining effective tool for the SNB to meet its

inflation objectives. With the exception of May 2021, the SNB’s net foreign exchange

purchases have broadly moderated since the onset of the pandemic in early 2020. Based

on the SNB’s published intervention figures, SNB intervention in 2021 amounted to $23

billion, or 2.8% of GDP, compared with $115 billion or 15.3% of GDP in 2020. By the end of

2021, Switzerland’s foreign currency reserves stood at $1.03 trillion, up slightly from $1

trillion at end-2020. As of end 2021, reserves covered 81% of short-term debt and 127%

of GDP.

In its March 24, 2022 monetary policy assessment, the SNB announced that it maintained

its main policy rate at -0.75% to foster price stability and support Swiss economic

recovery. Switzerland’s inflation rate increased to 0.6% in 2021. The SNB attributes the

increase to the rise in prices for oil products and to global supply bottlenecks. In their

latest communication, the SNB projects inflation to reach 2.1% in 2022 and 0.9% in 2023,

near or below its 2% ceiling, based on the assumption that the policy rate remains at

-0.75% over the forecast horizon.

Since early 2021, Treasury has been conducting enhanced bilateral engagement with

Switzerland in accordance with the 2015 Act and has been discussing with the Swiss

authorities the policy options to address the underlying causes of Switzerland’s external

imbalances. We expect these productive discussions to continue to help us reach a deeper

understanding of the policy issues related to Switzerland’s external imbalances. Treasury

and the Swiss authorities have begun a related but separate Standing Macroeconomic and

Financial Dialogue to discuss macroeconomic issues. 

-5

0

5

10

15

20

25

30

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Oct-21

Billion U.S. Dollars

Sources: Swiss National Bank, U.S. Treasury estimates 

Switzerland: Estimated FX Intervention
52

Section 2: Intensified Evaluation of Major Trading Partners

The 1988 Act requires the Secretary of the Treasury to provide semiannual reports to

Congress on international economic and exchange rate policy. Under Section 3004 of the

1988 Act, the Secretary must:

“consider whether countries manipulate the rate of exchange between their currency

and the United States dollar for purposes of preventing effective balance of payments

adjustment or gaining unfair competitive advantage in international trade.” 

This determination may encompass analysis of a broad range of factors, including not only

trade and current account imbalances and foreign exchange intervention (the criteria

evaluated under the 2015 Act), but also currency developments, the design of exchange

rate regimes and exchange rate practices, foreign exchange reserve coverage, capital

controls, monetary policy, and trade policy actions, as well as foreign exchange activities by

quasi-official entities that may be undertaken on behalf of official entities, among other

factors.

The 2015 Act requires the Secretary of the Treasury to provide semiannual reports on the

macroeconomic and foreign exchange rate policies of the major trading partners of the

United States. Section 701 of the 2015 Act requires that Treasury undertake an enhanced

analysis of macroeconomic and exchange rate policies for each major trading partner “that

has— (1) a significant bilateral trade surplus with the United States; (2) a material current

account surplus; and (3) engaged in persistent one-sided intervention in the foreign

exchange market.” Additionally, the 2015 Act requires the President, through the Secretary

of the Treasury, to “commence enhanced bilateral engagement with each country for which

an enhanced analysis” is included in the report. The Act also provides for the possible

imposition of penalties if, within one year of commencement of enhanced bilateral

engagement, the Secretary determines that a country “has failed to adopt appropriate

policies to correct the undervaluation and surpluses” that triggered the enhanced analysis

and enhanced bilateral engagement

Key Criteria

Pursuant to Section 701 of the 2015 Act, this section of the Report seeks to identify any

major trading partner of the United States that has: (1) a significant bilateral trade surplus

with the United States, (2) a material current account surplus, and (3) engaged in

persistent one-sided intervention in the foreign exchange market. Required data for the

period of review (the four quarters through December 2021, unless otherwise noted) are

provided in Table 1 (p. 18) and Table 2 (p. 55). 

As noted earlier, Treasury reviews developments in the 20 largest trading partners of the

United States, along with other trading partners that remain on the Monitoring List over

the period of review. These economies accounted for almost 80% of U.S. trade in goods

and services over the four quarters through December 2021. This includes all U.S. trading
53

partners whose bilateral goods and services surplus with the United States in 2021

exceeded $15 billion. 

The results of Treasury’s latest assessment pursuant to Section 701 of the 2015 Act are

discussed below.

Criterion (1) – Significant bilateral trade surplus with the United States:

Column 3 in Table 2 provides the bilateral goods and services trade balances for the United

States’ 20 largest trading partners for the four quarters through December 2021.

34 China

has the largest trade surplus with the United States by far, after which the sizes of the

bilateral trade surpluses decline notably. Treasury assesses that economies with a bilateral

goods and services surplus of at least $15 billion have a “significant” surplus. Highlighted

in red in column 3 are the 14 major trading partners that have a bilateral surplus that met

this threshold for the four quarters through December 2021. Table 3 provides additional

contextual information on total and bilateral trade, including individual goods and services

trade balances, with these trading partners. Because the Report now incorporates services

trade, Table 3, which provides disaggregated goods and services trade data, will be

essential for comparison with past Reports that focus on goods trade.

Criterion (2) – Material current account surplus:

Treasury assesses current account surpluses of at least 3% of GDP or a surplus for which

Treasury estimates there is a current account “gap” of at least 1 percentage point of GDP to

be “material” for the purposes of enhanced analysis. Highlighted in red in column 2a and

2d of Table 2 are the 9 economies that met these thresholds over the four quarters through

December 2021.35 Column 2b shows the change in the current account surplus as a share

of GDP over the last three years, although this is not a criterion for enhanced analysis. 

In the case of estimating current account gaps in 2021, Treasury applied one-off,

multilaterally consistent adjustments to its estimates to assess more accurately an

economy’s underlying current account given the uneven impacts of the pandemic on

external balances. These adjustments include controlling for the effects of abrupt shifts in

external flows such as tourism and remittances experienced over the course of the

pandemic. Such adjustments to control for the COVID-19 shock are necessary for providing

more intuitive estimates of excess imbalances.

34 Although this Report does not treat the euro area itself as a major trading partner for the purposes of the

2015 Act—this Report assesses euro area countries individually—data for the euro area are presented in

Table 2 and elsewhere in this Report both for comparative and contextual purposes, and because policies of

the ECB, which holds responsibility for monetary policy for the euro area, will be assessed as the monetary

authority of individual euro area countries.

35 See Box 2 in the December 2021 Report on Macroeconomic and Exchange Rate Policies of the United States’

Major Trading Partners for a summary of how Treasury estimates current account gaps.
54

Criterion (3) – Persistent, one-sided intervention: 

Treasury assesses net purchases of foreign currency, conducted repeatedly, in at least 8 out

of 12 months, totaling at least 2% of an economy’s GDP, to be persistent, one-sided

intervention.36 Columns 1a and 1c in Table 2 provide Treasury’s assessment of this

criterion.37 In economies where foreign exchange interventions are not published,

Treasury uses estimates of net purchases of foreign currency as a proxy for intervention. 

Highlighted in red in column 1a and 1c are the two major trading partners that met this

criterion for the four quarters through December 2021, per Treasury estimates.

36 Notably, this quantitative threshold is sufficient to meet the criterion. Other patterns of intervention, with

lesser amounts or less frequent interventions, might also meet the criterion depending on the circumstances

of the intervention.

37 Treasury uses publicly available data for intervention on foreign asset purchases by authorities, or

estimated intervention based on valuation-adjusted foreign exchange reserves. This methodology requires

assumptions about both the currency and asset composition of reserves in order to isolate returns on assets

held in reserves and currency valuation moves from actual purchases and sales, including estimations of

transactions in foreign exchange derivatives markets. Treasury also uses alternative data series when they

provide a more accurate picture of foreign exchange balances, such as Taiwan’s reporting of net foreign

assets at its central bank. To the extent the assumptions made do not reflect the true composition of reserves,

estimates may overstate or understate intervention. Treasury strongly encourages those economies in this

Report that do not currently release data on foreign exchange intervention to do so.
55

Net Purchases

(USD Bil., 

Trailing 4Q)

(1b)

Net Purchases

8 of 12 

Months†

(1c)

Balance

(% of GDP, 

Trailing 4Q)

(2a)

3 Year Change 

in Balance

(% of GDP) 

(2b)

Balance

(USD Bil., 

Trailing 4Q)

(2c)

Goods and Services 

Surplus with United 

States (USD Bil., 

Trailing 4Q) 

(3)

Canada 0.0 0 N o 0.1 2.4 1 -5.7 25

Mexico 0.0 0 N o -0.4 1.6 - 5 -0.9 106

China 0.1 — 1.6 * 24 — 290 Yes 1.8 1.6 317 0.3 340

Japan 0.0 0 N o 2.9 -0.7 141 2.0 55

Germany 0.0 0 N o 7.6 -0.5 319 3.8 73

United Kingdom 0.0 0 N o -2.6 1.3 -83 -1.5 -17

Korea -0.8 -14 N o 4.9 0.4 88 -2.7 22

Ireland 0.0 0 N o 14.1 8.9 70 11.0 11

Switzerland 2.8 23 Yes 9.3 3.2 75 1.7 21

India 1.3 41 N o -1.1 1.3 -35 0.3 45

Taiwan 1.2 9 Yes 14.8 3.2 115 7.4 40

Netherlands 0.0 0 N o 9.5 -1.3 97 0.6 -24

France 0.0 0 N o -0.8 0.0 -23 -1.9 22

Vietnam 2.8 ** 10 N o -1.1 -3.0 - 4 1.4 90

Singapore 7.3 29 Yes 18.1 3.0 72 6.3 -21

Brazil -1.9 -30 Yes -1.7 0.9 -28 1.2 -26

Italy 0.0 0 N o 2.5 -0.1 52 -3.2 39

Malaysia 0.2 ** 1 N o 3.8 1.6 14 -1.0 41

Thailand -2.2 ** -11 N o -2.1 -7.7 -11 0.1 33

Belgium 0.0 0 N o -0.4 0.4 - 2 -5.7 -12

Memo: Euro Area 0.0 0 N o 2.4 -0.6 340 0.3 132

Note: Current account balance measured using BOP data, recorded in U.S. dollars, from national authorities.

Sources: Haver Analytics; National Authorities; U.S. Census Bureau; Bureau of Economic Analysis; and U.S. Department of the Treasury Staff Estimates.

Table 2. Major Foreign Trading Partners Evaluation Criteria

Current Account Bilateral Trade

2021 GERAF 

CA Gap

(% of GDP)

(2d)

† In assessing the persistence of intervention, Treasury will consider an economy that is judged to have purchased foreign exchange on net for 8 of the 12 months to have met 

the threshold.

** Authorities do not publish FX intervention. Authorities have conveyed bilaterally to Treasury the size of net FX purchases during the four quarters ending December 2021.

Net Purchases

(% of GDP, Trailing 

4Q)

(1a)

FX Intervention

* China does not publish FX intervention, forcing Treasury staff to estimate intervention activity from monthly changes in the PBOC’s foreign exchange assets and monthly 

data on net foreign exchange settlements, adjusted for changes in outstanding forwards. Based on either the PBOC's foreign exchange assets data or net foreign exchange 

settlements data, intervention was persistent.
56

Goods and 

Services

(1a)

Goods

(1b)

Services

(1c)

Goods and 

Services

(2a)

Goods

(2b)

Services

(2c)

Goods and 

Services

(3a)

Goods

(3b)

Services

(3c)

Goods and 

Services

(4a)

Goods

(4b)

Services

(4c)

Canada 750 665 86 25 50 -24 37.7 33.4 4.3 1.3 2.5 -1.2

Mexico 719 661 58 106 108 - 2 55.6 51.1 4.5 8.2 8.4 -0.2

China 714 657 57 340 355 -15 4.0 3.7 0.3 1.9 2.0 -0.1

Japan 278 210 68 55 60 - 5 5.6 4.3 1.4 1.1 1.2 -0.1

Germany 266 200 66 73 70 3 6.3 4.8 1.6 1.7 1.7 0.1

United Kingdom 240 118 123 -17 - 5 -12 7.5 3.7 3.8 -0.5 -0.2 -0.4

Korea 192 161 32 22 29 - 7 10.7 8.9 1.8 1.2 1.6 -0.4

Ireland 178 87 90 11 60 -49 35.7 17.5 18.2 2.3 12.1 -9.8

Switzerland 162 87 75 21 39 -18 19.9 10.7 9.2 2.6 4.8 -2.2

India 159 113 46 45 33 12 5.2 3.7 1.5 1.5 1.1 0.4

Taiwan 134 114 20 40 40 0 17.3 14.7 2.6 5.1 5.2 0.0

Netherlands 127 89 38 -24 -18 - 6 12.5 8.8 3.7 -2.4 -1.8 -0.6

France 115 80 35 22 20 1 3.9 2.7 1.2 0.7 0.7 0.0

Vietnam 115 113 2 90 91 - 1 31.8 31.1 0.6 24.7 25.1 -0.4

Singapore 105 65 40 -21 - 6 -15 26.4 16.4 10.0 -5.3 -1.6 -3.7

Brazil 99 78 21 -26 -16 -11 6.1 4.9 1.3 -1.6 -1.0 -0.7

Italy 95 83 12 39 39 0 4.5 3.9 0.6 1.9 1.9 0.0

Malaysia 75 71 4 41 41 0 20.2 19.1 1.1 11.0 11.0 -0.1

Thailand 64 60 4 33 35 - 2 12.6 11.9 0.7 6.5 6.8 -0.3

Belgium 63 55 8 -12 -13 1 10.5 9.1 1.4 -2.0 -2.1 0.1

Memo: Euro Area 970 684 286 132 188 -56 6.7 4.7 2.0 0.9 1.3 -0.4

Table 3. Major Foreign Trading Partners - Expanded Trade Data

Total Trade Trade Surplus with United States

USD Bil., Trailing 4Q

Source: U.S. Census Bureau, and Bureau of Economic Analysis.

% of GDP, Trailing 4Q

Total Trade Trade Surplus with United States
57

Transparency of Foreign Exchange Policies and Practices

There is broad consensus that economic policy transparency enhances the credibility of

economic institutions and fosters a more efficient allocation of resources as information

asymmetries are reduced. As of March 2022, Taiwan began disclosing Internal Reserve and

Foreign Currency Liquidity (IRFCL) in the format of the IMF’s Special Data Dissemination

Standard (SDDS). Treasury will continue to press its major trading partners to make

significant strides in enhancing the transparency of currency practices. As part of this

effort, Treasury will monitor and provide its assessment of foreign exchange policy

transparency in the semiannual Report on Macroeconomic and Foreign Exchange Policies of

Major Trading Partners of the United States on a regular basis. 

Table 4: Transparency of the United States and Its Major Trading Partner’s Foreign Currency Regimes

Foreign Exchange Reserves Data Intervention

Headline 

Reserves: 

Frequency

/Lag

Derivative 

Position in 

IRFCL

Currency 

Compositi

on

Stated 

Objective

Publish 

Interventi

on

Frequency Lag

USA Weekly/1 

day Yes Public Yes Yes As it happens* None

ECB Monthly/

2 weeks Yes Public38 No Yes As it happens* None

UK Monthly/

3-7 days Yes COFER Yes Yes As it happens* None 

Japan Monthly/

1 week Yes COFER Yes Yes Monthly 2 days

Canada Monthly/

1 week Yes Public Yes Yes As it happens* None

Switzerland Monthly/

1 week Yes Public Yes Yes Quarterly 3 months

Australia Monthly/

1 week Yes Public Yes Yes Annually39 4 months

Brazil Daily/2 

days Yes Public Yes Yes Daily 5 days

Mexico Weekly/4 

days Yes Public Yes Yes Monthly 6 days

India Weekly/7 

days Yes COFER Yes Yes Monthly 2 months

China Monthly/

1 week No40 COFER No No

Taiwan Monthly/

1 week Yes No Yes Yes Semiannually 3 months

Korea Monthly/

1 month Yes COFER Yes Yes Quarterly 3 months

38 The ECB’s template on international reserves and foreign currency liquidity reports the currency

composition of the ECB’s official reserve assets each December but does not provide a comparable

breakdown for the Eurosystem.

39 Australia publishes daily foreign exchange intervention one time per year in October. Australia has not

intervened in foreign exchange markets since November 2008.

40 China only discloses total short positions in forwards and futures in foreign currencies.
58

Singapore Monthly/

1 week Yes COFER Yes Yes Semiannually 3 months

Thailand Weekly/1 

week Yes No Yes Yes41 Semiannually 3 months

Malaysia Biweekly/

1 week Yes No Yes Yes42 Semiannually 3 months

Vietnam

Monthly/

2-3 

months

No No Yes Yes43 Semiannually 3 months

* Intervention is published officially in certain reports on a regular basis but in practice intervention is

announced on the day it takes place.

41 Thailand discloses its foreign exchange intervention to Treasury with consent to publish in the FX Report.

42 Malaysia discloses its foreign exchange intervention to Treasury with consent to publish in the FX Report.

43 Vietnam discloses its foreign exchange intervention to Treasury with consent to publish in the FX Report.
59

Summary of Findings

Pursuant to the 2015 Act, Treasury finds that Switzerland met all three criteria for

enhanced analysis in the current review period of the four quarters through December

2021 based on the most recent available data. Vietnam, which had met all three criteria for

enhanced analysis under the 2015 Act in the three preceding Reports, met one of the three

criteria for enhanced analysis in this Report. Taiwan, which had met all three criteria for

enhanced analysis under the 2015 Act in the two preceding Reports, met two of the three

criteria for enhanced analysis in this Report. Additionally, ten major trading partners met

two of the three criteria for enhanced analysis under the 2015 Act in this Report or in the

December 2021 Report. These twelve economies—China, Japan, Korea, Germany,

Italy, India, Malaysia, Singapore, Taiwan, Thailand, Vietnam, and Mexico—constitute

Treasury’s Monitoring List. 

Ireland has been removed from the Monitoring List in this Report, having met only one out

of three criteria – a material current account surplus – for two consecutive Reports. 

With regard to the twelve economies on the Monitoring List:

• China has met one of the three criteria in every Report since the October 2016 Report,

having a significant bilateral trade surplus with the United States, with this surplus

accounting for a disproportionate share of the overall U.S. trade deficit. China met two

criteria in the December 2021 Report for the first time since the April 2016 Report (the

initial Report based on the 2015 Act), having a material current account surplus and a

significant bilateral trade surplus with the United States. For the four quarters ending

December 2021, China met one of the three criteria and therefore remains on the

Monitoring List. 

• Japan and Germany have met two of the three criteria in every Report since the April

2016 Report, having material current account surpluses combined with significant

bilateral trade surpluses with the United States.

• Korea has met two of the three criteria in every Report since April 2016, except for the

May 2019 Report, having a material current account surplus and a significant bilateral

trade surplus with the United States. While Korea’s bilateral trade surplus with the

United States briefly dipped below the threshold in 2018, it rose back above the

threshold in 2019. 

• Malaysia has met two of the three criteria since the May 2019 Report, having a material

current account surplus and a significant bilateral trade surplus with the United States. 

• Italy has met two of the three criteria since the May 2019 Report, having a material

current account surplus and a significant bilateral trade surplus with the United States. 

Italy met only the significant bilateral trade surplus threshold in this Report. 

• Singapore has met two of the three criteria since the May 2019 Report, having a

material current account surplus and engaged in persistent, one-sided intervention in

the foreign exchange market.

• Thailand had met two of the three criteria since the December 2020 Report, having a

material current account surplus and a significant bilateral trade surplus with the

United States. Thailand met only the significant bilateral trade surplus threshold in this
60

Report. As noted above, Thailand will remain on the Monitoring List until it meets

fewer than two criteria for two consecutive Reports. 

• India met two of the three criteria in the December 2021 and the April 2021 Reports,

having a significant bilateral trade surplus with the United States and engaged in

persistent, one-sided intervention over the reporting period. India met only the

significant bilateral trade surplus threshold in this Report. As noted above, India will

remain on the Monitoring List until it meets fewer than two criteria for two consecutive

Reports. 

• Mexico met two of the three criteria in the December 2021 and the April 2021 Reports,

having a material current account surplus and a significant bilateral trade surplus with

the United States. Mexico met only the significant bilateral trade surplus threshold in

this Report. As noted above, Mexico will remain on the Monitoring List until it meets

fewer than two criteria for two consecutive Reports. 

• Switzerland met two of the three criteria in the January 2020 Report, having a material

current account surplus and a significant bilateral trade surplus with the United States. 

Switzerland previously was included on the Monitoring List in every Report between

October 2016 and October 2018, having a material current account surplus and

engaged in persistent, one-sided intervention in the foreign exchange market. Based on

the available data at the time of each Report’s release, Switzerland met all three of the

criteria in the April 2021 Report and the December 2020 Report. Switzerland met two

of the three criteria in the December 2021 Report, having a significant bilateral trade

surplus with the United States and engaged in persistent, one-sided intervention over

the reporting period. Switzerland again meets all three criteria in this Report.

• Vietnam met two of the three criteria in the May 2019 Report, having a material current

account surplus and a significant bilateral trade surplus with the United States, and met

one of the three criteria in the January 2020 Report, having a significant bilateral trade

surplus with the United States. Vietnam met all three of the criteria in the December

2021 Report, the April 2021 Report, and the December 2020 Report. Vietnam met one

of the three criteria in this Report, having a significant bilateral trade surplus with the

United States. 

• Taiwan met two of the three criteria in the December 2020 Report, having a material

current account surplus and a significant bilateral trade surplus with the United States. 

Taiwan met all three of the criteria in December 2021 Report and the April 2021

Report. Taiwan met two of the three criteria in this Report, having a significant

bilateral trade surplus with the United States and material current account surplus over

the reporting period. 

Treasury will closely monitor and assess the economic trends and foreign exchange

policies of each of these economies.

In this Report, Treasury has concluded that no major trading partner of the United States

engaged in conduct of the kind described in Section 3004 of the 1988 Act during the

relevant period. This determination has taken account of a broad range of factors,

including not only trade and current account imbalances and foreign exchange intervention

(the criteria in the 2015 Act), but also currency developments, exchange rate practices,

foreign exchange reserve coverage, capital controls, and monetary policy.
61

As the global economy continues to stabilize, it is critical that key economies adopt policies

that allow for a narrowing of excessive surpluses and deficits. Heightened risks of

economic scarring further underscore the need for governments to bolster domestic-led

rather than externally supported growth. This would establish a firmer foundation for

strong, balanced growth across the global economy.
62

ANNEX 1: DEVELOPMENTS IN GLOBAL IMBALANCES

The United States has long pushed for strong, sustainable, and balanced growth in both

bilateral discussions with major trading partners and in multilateral fora. Indeed, the G-20

endorsed this goal for the global economy at the Pittsburgh Summit in 2009. After roughly

a decade following the global financial crisis of more moderate and even declining levels of

current account surpluses and deficits, these balances widened again in 2020-2021. The

widening was driven by the economic impact of, and associated policy responses to, the

COVID-19 pandemic that resulted in divergent global growth trajectories. This Annex

analyzes the evolution and drivers of global current account surpluses and deficits and

discusses when current account surpluses and deficits may be considered excessive.

Evolution and Drivers of Global Current Account Balances

Between 2000 and 2013, oil

exporters,

44 Japan, and China

accounted for 30-50% of

global current account

surpluses. As the oil exporters’

contribution declined, it was

offset by larger surpluses in

some European countries. 

Germany’s surplus has

remained large and relatively

stable over time, contributing

over 18% to global surpluses

on average over the last 10

years. The Netherlands and

Switzerland, while smaller

economies, have maintained

large surpluses which, taken together, have contributed over 9% to global surpluses on

average over the last 10 years. While China was a key driver of the sharp increase in global

imbalances leading up to the global financial crisis, its surplus subsequently narrowed,

though it remains a material contributor to current account surpluses globally,

contributing around 12% to global surpluses on average over the last 10 years. Some

smaller Asian economies have surpluses that are nominally small, but large relative to the

size of their economy. For example, Singapore, Taiwan, and Korea, taken together, have

accounted for, on average, about 13% of global surpluses. 

There were numerous factors at play in the shifting pattern of current account surpluses

from 2013 up until the COVID-19 pandemic hit.

45 Term of trade changes associated with

oil price declines exceeded the increase in export volumes for an overall decline in the

current account surpluses of oil exporting countries. Oil price declines meant oil importing

44 For the purposes of this annex “oil exporters” are the Gulf Cooperation Council countries.

45 2017 External Sector Report, International Monetary Fund. 

-4

-2

0

2

4 2000

2002200420062008201020122014201620182020

202220242026

Current Account Balances: Share of Global GDP

China Japan

Germany Europe Surplus excl. Germany

Singapore/Taiwan/Korea Gulf Coop. Council

United States United Kingdom

Other Surplus Other Deficit
63

countries experienced terms of trade gains. Heterogeneous responses to these gains

resulted in very different current account impacts. In the United States and the United

Kingdom, terms-of-trade-related income gains were more than offset by large increases in

trade volumes, driven in part by appreciating currencies and strong domestic demand. In

contrast, the impact in the euro area was much more muted amid relative weak domestic

demand and euro depreciation. 

The United States’ current account deficit increased significantly in 2020 due to the impact

of COVID-19 and extraordinary policy support, after remaining roughly stable since 2013. 

In fact, the U.S. deficit is typically larger than the “norm” estimated by the IMF. It is difficult

to disentangle the various drivers of the U.S. current account deficit, including public versus

private sector contributions, global demand for U.S. assets, and weak domestic demand in

other major economies. Each of these plays a role and, in turn, impacts each other.46 Fiscal

consolidation in the United States is likely to narrow the U.S. current account deficit in the

coming years. Empirical estimates suggest a 1 percentage point of GDP fiscal consolidation

reduces the current account deficit to GDP ratio between 0.2 to 0.6. percentage points on

average.47 Stronger domestic-led activity in the United States’ major trading partners

would likely narrow it further and more durably.

Excessive Global Imbalances

Policy makers and academics often point to the global sum of current account surpluses,

and the equivalent global total of current account deficits, as a measure of global

imbalances. While rapid changes in these figures may indicate a policy concern, the

existence of deficits and surpluses are not necessarily problematic and may instead be

indicative of differences in economic fundamentals across countries. 

46 Ferguson 2005: FRB: Speech, Ferguson—-U.S. Current Account Deficit: Causes and Consequences—-April

20, 2005 (federalreserve.gov)

47 Analysis in the IMF’s 2021 External Sector Report suggests 1% of GDP fiscal consolidation raises the

current account balance by 0.63% of GDP over the course of two years. Looking at contemporaneous effects,

Treasury’s GERAF model estimates that a 1% of GDP increase in the cyclically adjusted fiscal balance raises

the current account by 0.53% of GDP. The IMF’s External Balance Assessment also uses the cyclically

adjusted fiscal balance, suggesting a rise in the current account by 0.33% of GDP. Lastly, Gagnon and

Sarsenbayev (2021) estimate the effect of cyclically adjusted fiscal balances on current accounts depends on

the level of capital mobility, raising the current account by 0.19% of GDP with no mobility and by 0.38% with

full mobility.
64

The IMF’s External Balance

Assessment (EBA)

estimates current account

“norms” based on

economic “fundamentals”

that affect saving and

investment, such as

productivity,

demographics, expected

growth, institutional

quality, and an appropriate

mix of policies, including

fiscal and exchange rate

policy.48 Subsequently, the actual current account balance (stripping out cyclical factors) is

compared to the “norm” and the difference is the current account “gap.” This type of

analysis is helpful in coming to a view on which surpluses and deficits are “excessive.” A

positive gap is illustrative of a current account balance that is higher than it should be

based on economic fundamentals and desirable policies. The chart above provides the IMF

assessment of current account gaps for the year 2020 (latest available). These results

suggest the U.S. current account balance is “too low,” meaning the deficit is “too high”. At

the same time, China’s and Germany’s surpluses are “too high.” In total, IMF estimates

suggest that excessive surpluses totaled $450 billion (0.6% of global GDP) for the sample of

countries the IMF included in 2020. Excessive deficits totaled $550 billion (where the

United States accounts for 60% of this total). 

As the global economic recovery stabilizes, it is critical to adopt policies that allow for a

narrowing of both surplus and deficit imbalances. IMF research49 has noted an increase in

the persistence of current account surpluses since the global financial crisis. While the IMF

explains that in some cases persistent surpluses are justified based on demographics or

other underlying economic realities, it also stresses that large and persistent surpluses can

create risks. Excess global saving can reflect policy distortions that result in lower growth

and can exacerbate stock imbalances. In 2021 the global net international investment

position (IIP), remained at historically high levels. 

In general, and especially at a time of major global growth shocks, adjustments to reduce

imbalances should occur through a symmetric rebalancing process that sustains global

growth momentum rather than through asymmetric compression in deficit economies —

the channel which too often has dominated in the past. This is because policy adjustments

in deficit countries, e.g., fiscal consolidation, tend to be negative for economic activity while

the adjustments for surplus countries, e.g., fiscal supply and demand-enhancing structural

reforms, tend to support economic activity. The asymmetric adjustment that occurred

following the global financial crisis resulted in weaker global growth than would have been

realized should a greater degree of domestic demand-supporting policies been

implemented in surplus economies. 

48 Treasury’s Global Exchange Rate Assessment Framework (GERAF) model follows a similar approach. 

49 2017 External Sector Report, International Monetary Fund.

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

POL

SGP

MYS

SWE

DEU

MEX

NLDTHA

RUS

IND

AUSBRA

CHN

IDN

EUR

HKG

ITA

JPN

KOR

ESP

CAN

ZAF

CHE

TURSAUUSA

BEL

ARG

FRA

GBR

IMF Staff-Assessed Current Account Gaps, 2020

(In percent of GDP)
65

Glossary of Key Terms in the Report

Exchange Rate – The price at which one currency can be exchanged for another. Also

referred to as the bilateral exchange rate.

Exchange Rate Regime – The manner or rules under which an economy manages the

exchange rate of its currency, particularly the extent to which it intervenes in the foreign

exchange market. Exchange rate regimes range from floating to pegged.

Floating (Flexible) Exchange Rate – An exchange rate regime under which the foreign

exchange rate of a currency is fully determined by the market with intervention from the

government or central bank being used sparingly.

Foreign Exchange Reserves – Foreign assets held by the central bank that can be used to

finance the balance of payments and for intervention in the exchange market. Foreign

assets consist of gold, Special Drawing Rights (SDRs), and foreign currency (most of which

is held in short-term government securities). The latter are used for intervention in the

foreign exchange markets.

Intervention – The purchase or sale of an economy’s currency in the foreign exchange

market by a government entity (typically a central bank) in order to influence its exchange

rate. Purchases involve the exchange of an economy’s own currency for a foreign currency,

increasing its foreign currency reserves. Sales involve the exchange of an economy’s

foreign currency reserves for its own currency, reducing foreign currency reserves. 

Interventions may be sterilized or unsterilized.

Nominal Effective Exchange Rate (NEER) – A measure of the overall value of an

economy’s currency relative to a set of other currencies. The effective exchange rate is an

index calculated as a weighted average of bilateral exchange rates. The weight given to

each economy’s currency in the index typically reflects the amount of trade with that

economy. 

Pegged (Fixed) Exchange Rate – An exchange rate regime under which an economy

maintains a set rate of exchange between its currency and another currency or a basket of

currencies. Often the exchange rate is allowed to move within a narrow predetermined

(although not always announced) band. Pegs are maintained through a variety of

measures, including capital controls and intervention.

Real Effective Exchange Rate (REER) – A weighted average of bilateral exchange rates,

expressed in price-adjusted terms. Unlike the nominal effective exchange rate, it is further

adjusted for the effects of inflation in the countries concerned. 

Trade Weighted Exchange Rate – See Nominal Effective Exchange Rate.