Appendix 1 

Patterns of Indicators 

Appendix 1 in each of the Reports to the Congress on International Economic and Exchange 

Rate Policies since the autumn of 2005 discussed the use of indicators in considering the 

question of whether “countries manipulate 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”.1

 Those appendices stressed that, in 

considering the question of designating countries as manipulators, a range of indicators needs to 

be assessed. While an individual indicator – such as a reserve or a current account position – 

may yield important information, it will not in and of itself provide a comprehensive picture of a 

country’s economic situation or external position. Rather, it is the pattern of change in indicators 

that, when examined in terms of economic conditions in a specific country and the global 

economic environment, typically provides the most useful information. Indeed, the countries 

included in this analysis include a number, designated with asterisks, whose exchange rates are 

wholly market determined. This appendix updates the indices considered in previous reports. 

Table 12

 

1

 The Omnibus Trade and Competitiveness Act of 1988 states, among other things, that: “The Secretary of the 

Treasury shall analyze on an annual basis the exchange rate policies of foreign countries, in consultation with the 

International Monetary Fund, and consider whether countries manipulate 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.” 

2

 The “Contribution to Growth of the External Sector” is calculated as the annual change in real net exports (in the 

National Income and Product Accounts) as a percent of real gross domestic product. The “Relative Dependence of 

GDP Growth on the External Sector” is measured as the external sector’s contribution to GDP growth minus the 

contribution of the growth in domestic demand. This dependency measure reflects the view that a country will be 

generally more concerned about the contribution of the external sector to GDP growth if the contribution of the 

domestic sector to GDP growth is relatively small. For example, Singapore’s external sector contributed 2.8 percent 

to average GDP growth during 2004-2006 while domestic demand contributed 4.9 percent. China’s external sector 

contributed 3.5 percent to average GDP annual growth during 2004-2006 while domestic demand contributed 6.9 

percent. Turkey’s external sector subtracted 2.3 percent from average GDP growth during this period while domestic 

Real Effective External Sector Relative Dependence

Level Change Ratio to Ratio to short-term Change Exchange Rate Contribution to of GDP Growth

over period 2006 GDP external debt in reserves (% appreciation) Growth Rate on External Sector

 (%GDP) (%GDP) (%) (%) (%) (Average %) (Average %)

2006 2002-2006 Dec 2006 Dec 2006 Dec05 to Dec06 Feb02 - Mar07 2004-2006 2004-2006

Saudi Arabia 27.4 21.1 7.5 218.5 7.9 -22.7 -4.8 -15.1

Singapore 27.5 13.7 103.1 133.2 17.8 15.2 2.8 -2.1

Venezuela 14.9 6.7 15.9 636.4 23.4 18.2 -9.1 -31.2

Norway * 16.7 4.1 16.8 40.7 21.1 22.5 -2.1 -7.3

Malaysia 17.1 8.7 54.8 370.2 17.8 -10.4 -0.5 -7.2

Switzerland * 17.3 8.9 9.9 8.9 5.5 -8.5 0.7 -0.9

Russia 10.2 1.8 29.9 517.2 68.1 37.4 -2.2 -11.1

Sweden * 7.4 2.1 6.2 13.4 12.6 5.1 1.5 -0.8

China 9.5 7.1 40.6 1333.2 30.2 -2.0 3.5 -3.5

Taiwan 6.7 -2.0 74.3 838.9 2.7 -7.0 1.9 -1.1

Germany * 5.0 3.1 na na na na 0.9 0.3

Japan * 3.9 1.1 20.0 229.3 5.6 -13.6 0.7 -1.0

Canada * 1.7 0.0 2.6 16.6 8.3 11.6 -1.5 -6.0

Korea 0.7 -0.3 26.8 238.3 13.5 21.4 2.1 -0.5

Euro Area * -0.1 -0.9 1.7 3.9 10.1 24.2 0.1 -1.9

Mexico * -0.2 2.0 9.0 248.2 3.3 -5.3 -0.6 -5.2

India -1.3 -2.8 20.7 382.6 29.9 0.0 0.3 -8.0

Thailand 1.5 -2.2 31.6 451.1 29.0 15.0 0.7 -3.9

United Kingdom * -3.4 -1.8 1.6 1.6 8.5 0.9 -0.4 -3.4

Australia * -5.4 -1.7 7.0 26.1 28.9 40.3 -1.5 -5.9

United States * -6.5 -2.0 0.3 2.4 8.2 -22.0 -0.3 -4.1

Turkey * -8.2 -7.4 15.8 137.9 20.8 11.8 -2.3 -11.8

Spain * -8.6 -5.4 na na na na -1.8 -7.2

Portugal * -9.4 -1.3 na na na na -0.2 -1.5

Current Account Balance Foreign Exchange Reserves
2

The same methodology used in the previous reports is used below to examine more closely the 

patterns of indicators by assigning qualitative values of low, medium, or high (numerically 0, 1, 

or 2) to the indicators and constructing indices based on alternative weighting schemes which 

give different emphasis to the various indicators. The three schemes are: 

• A focus on changes in current account balances, foreign exchange reserves, and real effective 

exchange rates, assigning each a one third weight. 

• A focus on current account balances, changes in current account balances, changes in foreign 

exchange reserves, changes in real effective exchange rates, and relative dependence of GDP 

growth on the external sector, assigning each a one fifth weight. 

• A focus on current account balances, changes in current account balances, and relative 

dependence of GDP growth on the external sector, assigning each a one third weight. 

The three weighting schemes yielded the following rankings, ordering first by score then 

alphabetically: 

*represents currencies that are wholly market determined. 

There are some notable changes in the rankings since the last report. 

• The Swiss franc is an independent floating currency, and Swiss authorities have not 

intervened in the foreign exchange market. A marginal increase in Switzerland’s relative 

dependence of GDP growth on the external sector raised it to the highest bracket in this 

category. This was sufficient, in light of its already large and growing current account 

surpluses, to raise Switzerland to the top of all three schemes. Switzerland’s current account 

surplus reflects significant surpluses in trade in financial services and investment income. 

 demand contributed 9.5 percent. The “Real Effective Exchange Rate” is JP Morgan’s Broad Real Effective 

Exchange Rate Index. 

Scheme I Scheme II Scheme III

China 1.7 Switzerland * 1.8 Switzerland * 2.0

Malaysia 1.7 China 1.6 China 1.7

Saudi Arabia 1.7 Japan * 1.4 Germany * 1.7

Switzerland * 1.7 Malaysia 1.4 Singapore 1.7

Japan * 1.3 Saudi Arabia 1.4 Sweden * 1.7

Mexico * 1.0 Singapore 1.2 Japan * 1.3

Russia 1.0 Sweden * 1.2 Malaysia 1.3

Singapore 1.0 Germany * 1.0 Saudi Arabia 1.3

Venezuela 1.0 Russia 1.0 Venezuela 1.3

India 0.7 Taiwan 1.0 Korea 1.0

Norway * 0.7 Venezuela 1.0 Norway * 1.0

Sweden * 0.7 Korea 0.8 Russia 1.0

Taiwan 0.7 Norway * 0.8 Taiwan 1.0

United Kingdom * 0.7 Mexico * 0.6 Thailand 0.7

Australia * 0.3 Thailand 0.6 Canada * 0.3

Canada * 0.3 United Kingdom * 0.6 Euro Area * 0.3

Euro Area * 0.3 Canada * 0.4 Mexico * 0.3

Germany * 0.3 Euro Area * 0.4 Portugal * 0.33

Korea 0.3 India 0.4 United Kingdom * 0.3

Thailand 0.3 Australia * 0.2 Australia * 0.0

Turkey * 0.3 Portugal * 0.2 India 0.0

Portugal * 0.0 Turkey * 0.2 Spain * 0.0

Spain * 0.0 Spain * 0.0 Turkey * 0.0
3

• A significant increase in the growth in China’s current account surplus and in China’s 

dependence on the external sector for growth raised China to the top, or near the top, of all 

three schemes. 

• A marginal increase in the relative dependence of GDP growth on the external sector edged 

Japan into the highest bracket of that category, while a small increase in the rate of reserve 

accumulation put it into the middle bracket of that category. These had the effect of raising 

Japan in all three schemes. Both changes were small, the increase in reserves reflecting 

interest earned on existing reserves and valuation effects. Japan maintains a floating 

exchange rate regime. The Yen is widely traded in foreign exchange markets and Japanese 

authorities have not intervened in this market since March 2004. 

• Reduced dependency of growth on the external sector dropped Singapore’s rankings in 

schemes II and III.