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

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

November 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 ........................................19

Enhanced Analysis Under The 2015 Act.................................................................................37

Section 2: Intensified Evaluation of Major Trading Partners..............................................42

Key Criteria......................................................................................................................................42

Transparency of Foreign Exchange Policies and Practices..............................................47

Glossary of Key Terms in the Report............................................................................................51

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

The global economic outlook is facing considerable uncertainty. Russia’s illegal war against

Ukraine is taking a devastating human toll, from lives lost, to families displaced internally

or becoming refugees. It is also imperiling the global recovery from the COVID-19

pandemic through supply disruptions and rising commodity prices, as well as increasing

food insecurity and inequality. The IMF projects slow global growth in both 2022 and 2023

due in no small part to Russia’s war, with substantial markdowns in expected growth for

both years from the forecasts six months ago and 2023 marked down from the July

forecast. The dollar has strengthened considerably in the last year and the U.S. current

account deficit has widened. While these conditions can sometimes be problematic from

the perspective of this Report, these movements appear to be driven by stronger output

conditions and more rapid monetary tightening in the United States. The bulk of currency

intervention by our partners was in fact aimed to strengthen, not weaken, their currencies.

In the last year, fundamental factors, including diverging growth and monetary outlooks

against the backdrop of Russia’s war, the COVID-19 pandemic, and supply chain

bottlenecks resulting in rising, broad-based inflationary pressures, have impacted major

currencies. Shortly after a brief spike in the value of the dollar at the start of the COVID-19

pandemic, the dollar depreciated through much of 2020. Since May 2021, though, the dollar

strengthened against most major trading partners’ currencies, reflecting strong U.S. growth

and rising interest rate differentials, as well as safe haven flows. 

In particular, the nominal trade-weighted dollar appreciated over 10% in the year through

end-September, surpassing its highest level in two decades. The Japanese yen depreciated

roughly 25% 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. 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 more than 20% against the dollar in the year

through end-September. The pound saw a an even stronger depreciation over this period

and experiences a subsequent, sharp depreciation following the British government’s

announcement of fiscal policies. While dollar appreciation has been largest versus

advanced economies this year, appreciation is broad based. The Chinese renminbi

depreciated almost 11% against the dollar in the year through end-September. From a

longer-term perspective, the dollar appreciated comparably against currencies of advanced

economies and emerging markets between the onset of pandemic-induced financial market

volatility in mid-February 2020 to end-September 2022, strengthening by 11% against

advanced economy currencies and 8% against emerging market currencies. 

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. At the global level, current account

surpluses widened for the second consecutive year to 2.1% of world GDP in 2021, up 0.4

percentage points from 2020. The IMF estimates that global imbalances widened further in

2022 largely because of ongoing pandemic-related factors and elevated commodities prices
2

caused by Russia’s war. 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. These levels are still considerably smaller than their

most recent peak in 2005-2008. Among major U.S. trading partners, the very large

surpluses of Germany, Korea, Ireland, Switzerland, Taiwan, the Netherlands, and Singapore

have each remained significant as a share of GDP over the four quarters through June 2022. 

During this period, Japan’s current account surplus was smaller than in the four quarters

through June 2021 as a share of GDP, but in dollar terms remained elevated at $82 billion. 

China’s surplus was even higher in dollar terms at $367 billion over four quarters through

June 2022 (2.0% of GDP), roughly $41 billion higher than in the four quarters through June

2021. Meanwhile, a strong U.S. policy response to the COVID-19 pandemic, the resulting

pick-up in domestic demand, and a strong dollar caused the U.S. current account deficit to

rise to 4.1% of GDP in the four quarters through June 2022.

The Biden Administration believes market determined exchange rates reflecting economic

fundamentals is the appropriate arrangement for the dollar. When major economies face

different stresses and accordingly pursue different policies, this will typically be reflected

in currency movements. We monitor currency movements and their impact around the

world, cognizant that a range of approaches to manage consequences by developing and

emerging economies may be warranted in certain circumstances. We are also vigilant in

responding to strains that this can present, whether it means a need for help from

multilaterals, debt restructuring, or other responses. The Administration strongly opposes

attempts by the United States’ trading partners to artificially manipulate currency values to

gain unfair advantage over American workers. 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-7 members have committed to market determined exchange rates. 

All G-20 members have agreed that strong fundamentals and sound policies are essential to

the stability of the international monetary system and not to target our exchange rates for

competitive purposes.

2 All IMF members have committed to avoid manipulating their

exchange rates to gain an unfair competitive advantage over other members. 

With currencies under depreciation pressure many of our major trading partners have

intervened over the past year to stem the pace of depreciation against the dollar. 

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

persistent, one-sided manner with the aggregate effect of counteracting appreciation

pressures. Over the four quarters through June 2022, 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. In addition, while the

present global macroeconomic circumstances – elevated inflation, monetary tightening to

slow demand, and dollar appreciation – reduce concerns about current account surpluses,

it is important to monitor countries’ external balances and whether their production and

domestic absorption are broadly aligned.

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

Treasury Analysis under the 1988 and 2015 Legislation

This Report assesses developments in international economic and exchange rate policies

over the four quarters through June 2022. The analysis in this Report is guided by Sections

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

22 U.S.C. §§ 5301-5306) and Sections 701 and 702 of the Trade Facilitation and Trade

Enforcement Act of 2015 (2015 Act) (codified at 19 U.S.C. §§ 4421-4422), as discussed in

Section 2 of this Report. 

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 material current account “gap” using Treasury’s

Global Exchange Rate Assessment Framework (GERAF). 

(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 

Treasury is able to estimate current account gaps using GERAF only on an annual basis due

to data availability. However, external positions have adjusted considerably over the four

quarters through June 2022, and therefore the latest available GERAF estimates (i.e.,

estimates for 2021) may not fully reflect recent developments during the review period in

this Report. To account for this, Treasury considers a material current account gap to be

one where a given current account balance—stripping out cyclical factors—is substantially

higher than the expected current account balance given the economy’s economic

fundamentals and the appropriate mix of macroeconomic policies.

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

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

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 once again exceeded the thresholds for all three criteria over the four quarters

through June 2022, as it had in the last Report which covered the four quarters through

December 2021. Therefore, Treasury is continuing enhanced analysis of Switzerland’s

macroeconomic and exchange rate policies in this Report, and Treasury is also continuing

its enhanced bilateral engagement with Switzerland to discuss the Swiss authorities’ policy

options to address the underlying causes of its external imbalances.

Vietnam has been removed from the Monitoring List, having only met one of the three

criteria over the four quarters through June 2022 as it had in the June 2022 Report for 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. 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

remains satisfied with the progress made by Vietnam.

Taiwan again exceeded the thresholds for two criteria over the four quarters through June

2022 as it did in the June 2022 Report for the four quarters though December 2021. 

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. As Taiwan continues to meet two of the three criteria, Taiwan will

remain on the Monitoring List. 

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 June 2022. 

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

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

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, Malaysia, Singapore, and Taiwan.

Italy, India, Mexico, Thailand, and Vietnam have been removed from the Monitoring List in

this Report, having met only one out of three criteria for two consecutive Reports.

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 warrants 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 June 2022 and, where quarterly and/or monthly data are available,

through end-September 2022. Total goods and services trade of the economies covered

with the United States amounted to more than $5.1 trillion in the four quarters through

June 2022, almost 80% of all U.S. trade during that period. 

U.S. Economic Trends

After expanding in 2021 at the fastest pace in about 40 years, real gross domestic product

(GDP) in the United States contracted slightly in the first half of 2022. Despite the mild

pullback in this measure of aggregate economic activity, GDP returned to growth in the

third quarter and other data have suggested persistent expansion throughout the year. 

Labor markets remained very strong during the first three quarters of this year with

substantive job growth. Meanwhile the headline unemployment rate declined from 3.9% at

the end of 2021 to 3.5% as of September 2022—returning to the pre-pandemic, halfcentury low. Moreover, household balance sheets remained healthy, and supply-chain

disruptions appeared to ease toward the end of the second quarter and through the third

quarter—though improved supply chains have not yet led to materially lower inflation. 

Indeed, inflation remained elevated on a year-over-year basis as domestic factors were

aggravated by Russia’s war against Ukraine and the related rise in energy and food prices. 

Given the higher and persistent rates of inflation, the Federal Open Market Committee

raised its policy rate by a combined 125 basis points in May and June; by September, the

policy rate was 300 basis points higher than at the beginning of the year.

The outlook for growth in the latter half of 2022 remains favorable. Real GDP rebounded

2.6% at an annual rate in the third quarter, more than offsetting the modest contractions in

the first two quarters. Even so, the economic outlook for the final quarter of the year

remains uncertain with risks largely weighted to the downside. In early October, before

the third quarter GDP estimate, private forecasters projected real GDP would grow 0.2% at

an annual rate in the fourth quarter. Further commodity price increases associated with

Russia’s war against Ukraine could translate into higher U.S. inflation, while supply chain

disruptions could re-emerge. By contrast, however, COVID-19 is moving from pandemic to

endemic and its risk to the economy has waned. As of mid-September, nearly 80% of the

U.S. population had received at least one dose of the COVID-19 vaccines and the

administration of bivalent COVID-19 vaccines should reduce the prevalence and severity of

Omicron subvariant cases in the autumn and winter of 2022, mitigating the economic

impact from COVID-19.

Economic Performance in 2022 H1

Economic performance during the first half of this year was constrained by a further

winding down of fiscal support, renewed lockdowns in Asia combined with increased

disruptions to supply chains, and accelerating inflation. Russia’s war against Ukraine
7

contributed to the slowdown by pushing up commodity prices and contributing to

consumer inflation, which has weighed on household confidence. As a result, real GDP

growth swung from a brisk 4.8% annualized pace during the latter half of 2021 to two

consecutive quarterly declines of 1.6% and 0.6% in the first and second quarters,

respectively.

Despite the contraction of headline GDP, real growth in private domestic final purchases

(PDFP) remained positive, slowing from 2.4% in the latter half of 2021 to 1.3% in this

year’s first half. Although there was a significant decline in residential real estate

investment in the first two quarters of 2022, there was moderate growth in consumption

and a solid advance in business fixed investment, excluding structures.

Among the components of PDFP that supported growth, real personal consumption

expenditures increased by 1.7% at an annual rate during the first half of 2022, slowing

from a gain of 3.0% during the second half of 2021. Business fixed investment (BFI)

growth accelerated to 3.9% during the first half of 2022, after rising by 0.9% during the

latter half of 2021. 

The final two components of PDFP continued to decline at fast paces in the first half of

2022. Business investment in structures pulled back 8.6% at an annual rate in the first half

of 2022 versus a 9.7% decline in the final two quarters of 2021, and residential investment

dropped 10.8%, extending the decline of 3.5% seen during the second half of 2021.

Meanwhile, public-sector consumption and investment fell further in the first half of 2022.

Government spending fell at all levels, dropping by 1.9% at an annual rate over the first

two quarters of 2022, following a decline of 0.6% in the latter half of 2021. Expenditures

dropped by 4.4% at the federal level, while state and local government spending decreased

by 0.5%.

International demand posed a somewhat larger drag on growth as net exports subtracted

an average 1.0 percentage point annualized from real GDP during the first half, after

shaving an average 0.6 percentage points in 2021’s second half. Import growth slowed

modestly over these two periods, moderating by 2.4 percentage points to 10.0% during this

year’s first half. Export growth slowed more quickly, falling from 10.5% in the latter half of

2021 to 4.2% in the first half of 2022.

Private inventory accumulation, or intermediate demand for goods, presented a drag on

GDP growth. In the last half of 2021, firms began to rebuild stocks on hand; the change in

private inventories swung by a net $446 billion between the first and second halves of

2021, which added an average of 3.5 percentage points to GDP growth. Although

inventories continued to increase in the first half of 2022, the net change in inventories

slowed to $218 billion, which shaved 0.9 percentage points from headline growth.

In contrast to real GDP data, other economic indicators present a more sanguine view of

the state of the U.S. economy in the first half of 2022. Real gross domestic income (GDI),

which theoretically should equal real GDP with some statistical discrepancy, diverged from
8

the reading from demand components. In the first half of 2022, real GDI grew 0.4% at an

annual rate in the first half, compared to the 1.1% decrease in real GDP. In short, GDI

suggests that economic expansion continued modestly through the first half of 2022.6

In addition, labor markets remained very strong during the first half of 2022 as robust

labor demand encountered relatively slow improvement in labor supply. Payroll job

creation remained unusually rapid, accelerating to an average 590,000 per month during

the latter half of 2021, before stepping down to a still-brisk pace of 444,000 per month

during the first half of 2022. In 2021, a record 6.7 million jobs were created with well over

3.5 million added in the latter half of the year. The economy generated another 2.7 million

jobs during the first half of this year. Meanwhile after falling to 3.9% in December 2021,

the unemployment rate (U-3) dropped to 3.6% by June 2022, only 0.1 percentage points

above the five-decade low seen just before the pandemic. Although improvement in the

labor force participation rate (LFPR) has been unsteady, it has trended slowly higher. By

December, LFPR was 61.9%, or 0.3 percentage points higher than in June 2021. During the

first half of 2022, headline LFPR remained in a higher range of 62.2% and 62.4% and, as of

June 2022, as was 0.3 percentage points higher than in December. 

Inflation began to pick up in mid-2021, due to supply-demand mismatches. Household

goods demand ran ahead of pre-pandemic trend, as household consumption was strong

due to healthy household balance sheets, robust income growth. and the multiple rounds of

fiscal support. In addition, the supply side of the economy has not kept pace as producers

pared back employment and investment during the pandemic and supply-chain disruptions

further constrained production.

High inflation continued into the first half of 2022 as supply-demand mismatches persisted,

high house prices fed into the cost of shelter, and Russia’s illegal war against Ukraine

further elevated energy and food prices—the latter of which are affected by the former due

to pass-through to agricultural supply chains through natural gas for fertilizer, diesel for

tractors and trucks, and other methods. Through June 2022, the headline consumer price

index CPI rose by 9.1% over the year, reflecting in part a nearly 41.6% jump in energy

prices and a 10.4% increase in the food CPI. For core prices (excluding food and energy),

the CPI rose by 5.9% over the year through June 2022, boosted in part by soaring prices for

new and used motor vehicles—with yearly gains of 11.4% and 7.1%, respectively—and a

5.6% jump in the shelter index over the same period. In addition, there was a broad-based

rising in other core prices, with non-motor vehicle core goods rising and estimated 5.9%

over the year and core services up 5.4%.

6 On September 29, the Bureau of Economic Analysis (BEA) released its annual revision of gross domestic

product and related economist estimates. With the inclusion of more complete data, the revisions somewhat

reconciled the divergence of GDI growth from GDP growth for 2020 and 2021: BEA revised up its estimate of

GDP and revised lower its estimate of GDI. An abnormal statistical discrepancy still exists for 2022, but future

annual revisions may narrow the divergence between GDP and GDI.
9

Economic Developments Since June 2022

According to the advance estimate, real GDP rose 2.6% at an annual rate in the third

quarter, more than offsetting the modest contraction in the first half of the year. However,

some details within the report were somewhat weak. Real PDFP barely increased in the

third quarter—increasing just 0.1 percentage point on an annualized basis—as sharp drops

in residential investment and business spending on structures nearly offset growth in

household consumption and business investment in equipment and intellectual property

products. For PCE, specifically, household demand for goods (both durables and

nondurables) fell, while spending on most services—save for health care—weakened.

Excluding PDFP, economic activity contributed to GDP growth in Q3, on net. The net export

deficit narrowed by $157 billion to $1,274 billion, contributing 2.8 percentage points to

headline growth. Although inventories continued to be a drag on growth, the pace slowed

and the change in private inventories subtracted 0.7 percentage points from GDP growth. 

By contrast, the public sector added 0.4 percentage points to GDP growth, with nearly

equal contributions from both the federal sector and state and local governments.

Tight labor markets persisted in the third quarter. Demand for labor remained elevated—

though there were some signs of easing. The economy added an additional 1.1 million jobs

during the third quarter, and the level of employment surpassed pre-pandemic levels

during August 2022. Even so, job growth slowed from an average over 440,000 jobs per

month in the first half of the year to an average of near 370,000 in the third quarter. The

still-strong employment growth contributed to the unemployment rate remaining low. The

U-3 fluctuated between 3.5% to 3.7% of the labor force—little changed from the second

quarter—and was 3.5% in September, returning to the half-century low seen just before

the onset of the pandemic. By September, the LFPR stood at 62.3%, matching the rate in

the first half of the year. However, there were positive signs among prime-age workers. 

The prime-age LFPR in September was 82.7%, up 0.4 percentage points from June 2022

and halving the distance to the nearly twelve-year high of 83.1% reached in January 2020. 

The rise in prime-age participation may be a positive sign for easing tightness on the

supply side of labor markets.

Year-over-year inflation remained elevated in the third quarter—though monthly increases

at the headline level were noticeably slower compared with the first half of the year. In July

and August, headline CPI monthly inflation was 0.0% and 0.1%, respectively, as falling

energy prices offset still-strong price growth for food and core goods and services. The CPI

for energy goods and services declined in each month of the third quarter, dropping a

cumulative 11.3% since June. Meanwhile, food price inflation remained elevated, declining

only modestly from 1.0% in June to 0.8% in September. Core inflation was also modestly

softer, growing 6.4% at an annual rate in the third quarter versus 6.6% in the second. 

However, core inflation has a high floor due to persistent and strong growth of shelter

prices, such as rents and owners’ equivalent rents. By contrast, inflation for other core

services appears to have weakened in the third quarter. Excluding shelter, core services

inflation dropped from an 10.0% annualized growth rate in the second quarter to a 4.8%

growth rate in the third quarter. Core goods prices, meanwhile, were another key
10

contributor to core inflation in the third quarter, stepping up from a 3.1% annualized

growth rate in the second quarter to 5.3% in the third. This acceleration followed spiking

prices from May to August, but monthly core goods inflation was flat by September. 

Due to the persistence of still-elevated inflation, the FOMC has continued to tighten

monetary policy. Since June, the FOMC has raised the federal funds rate target range by an

additional 150 basis points, leading to a range of 3.00-3.25% by the end of September. The

FOMC’s latest Summary of Economic Projections, released in September, implied a yearend federal funds target rate range of 4.25–4.5%, consistent with increases of 75 basis

points and 50 basis points at the final two meetings of the year. The FOMC’s balance sheet

runoff—that is, allowing maturity of longer-term assets without reinvestment—began on

June 1. In September, runoff caps were raised as scheduled to $90 billion ($60 billion

Treasuries, $35 billion mortgage-backed securities).

Federal Finances in Fiscal Year 2022

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

rose sharply, following the various fiscal responses to combat the pandemic’s effect on the

economy. The federal deficit peaked a $3.1 trillion in fiscal year (FY) 2020, equivalent to

14.9% of nominal GDP. Although two major federal pandemic assistance packages were

passed in FY 2021—the Coronavirus Response and Relief Supplemental Appropriations Act

of 2021 and the American Rescue Plan—the federal government’s budget deficit fell to $2.8

trillion (12.3% of GDP) over the fiscal year.

Federal finances continued to improve significantly FY 2022. The federal deficit totaled

$1.4 trillion, falling by 50% over the year. As a share of the economy, the federal deficit

was 5.5% of nominal GDP. Higher federal receipts accounted for the majority of the

decrease in the deficit, rising by $850 billion to $4.9 trillion, equivalent to 19.6% of GDP. 

Receipts growth was driven in large part by higher individual income tax receipts, related

to the strong labor market in FY 2022. Meanwhile, outlays fell by $550 billion to $6.3

trillion, equivalent to 25.1% of the economy. The largest source of the decrease in outlays

was from income security programs, which fell by $783 billion as federal pandemic

assistance expired. By contrast, outlays for Medicare and Medicaid, Social Security, and net

interest—that is, payments on accrued federal debt—continued to increase over the year. 

Medicare and Medicaid outlays were $130 billion higher over the year, while Social

Security outlays increased by $84 billion. Net interest outlays were up by $123 billion from

FY 2022. At the end of FY 2022, gross federal debt stood at $30.9 trillion (123.7% of GDP)

while debt held by the public was $24.3 trillion (97.2% of GDP).
11

U.S. Current Account and Trade Balances

The current account deficit rose in

the first half of 2022 to 4.3% of

GDP, up 0.5 percentage points

from the previous half. This was

the largest deficit as a share of

GDP since the end of 2008. This

increase was accounted for both

by a rising goods deficit and lower

services and income surpluses. 

From 2013 to 2020, the headline

U.S. current account deficit had

been quite stable, around 2-2.5%

of GDP. 

Beginning in the second half of

2020, U.S. domestic demand

recovered quickly, while

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. 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. As inflation persisted into 2022 and Russia’s

war against Ukraine injected fresh uncertainty over critical commodities supply, monetary

tightening in the United States responded to stabilize rising prices. The divergence in

monetary policy between the United States and other countries on top of growing fears of a

global slowdown, contributed to dollar strength, and the U.S. trade deficit increased to

4.4% of GDP in the first half of 2022. 

At the end of June 2022, the U.S. net international investment position marked a net

liability of about $16.3 trillion (65.5% of GDP), a narrowing of $1.8 trillion compared to

end-2021. The value of U.S.-owned foreign assets was $31.0 trillion, while the value of

foreign-owned U.S. assets stood at $47.3 trillion. 

International Economic Trends

Russia’s war against Ukraine continues to undermine the nascent global economic recovery

from COVID-19 and has caused critical commodity prices to soar, exacerbating inflation. In

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

-6

-5

-4

-3

-2

-1

0

1

2

3 H1 2013

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

H2 2019H1 2020H2 2020H1 2021H2 2021H1 2022

2013 2014 2015 2016 2017 2018 2019 2020 20212022

Percent of GDP

U.S. Current Account Balance

Goods Services Income Current Account Balance

Sources: Bureau of Economic Analysis, Haver

-40

-20

0

20

40

60

Jan-2006Jan-2007Jan-2008Jan-2009Jan-2010Jan-2011Jan-2012Jan-2013Jan-2014Jan-2015Jan-2016Jan-2017Jan-2018Jan-2019Jan-2020Jan-2021Jan-2022

Annual Percent Change

U.S. Goods and Services Trade Growth

Exports Imports

Source: U.S. Census Bureau 
12

the Ukrainian economy, regional and global spillovers have been significant. Alongside

supply and demand mismatches which have elevated inflation, Russia’s war against

Ukraine has sent prices of energy, agricultural goods, and base metals to historic highs. 

Inflation has thus persisted longer than expected, with monetary policy responding in line

with central bank mandates. Following a healthy rebound in global output of 6.0% in 2021,

led by advanced economies and owing partially to their forceful policy support, the IMF

projects global economic growth to slow in 2022 to 3.2%. Many emerging markets and

developing economies where output and labor markets remain further below prepandemic trajectories must now also contend with increasing energy and food insecurity,

rising debt burdens, and capital flow volatility. For commodity importers, the twin risks of

subdued growth and high inflation are becoming more prominent. 

In light of the prospects for weaker growth and strains on fiscal and external positions,

countries should carefully calibrate macroeconomic policies. Targeted fiscal policy should

protect the most vulnerable, while monetary policy responds in line with central bank

mandates. Some emerging market and developing economies have significant buffers to

withstand external shocks. Commodity exporters have the opportunity now through high

prices to build up fiscal buffers and reserves. Yet others with weak monetary and fiscal

credibility may be more constrained altogether. Identifying the sources of inflationary

pressure and/or weak growth is also necessary. Different policy responses will be

required to address weak growth, depending on its drivers. 

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 October 2022

Advanced Economies Emerging Market Economies
13

Foreign Exchange Markets7

Strong performance of the U.S.

economy, more rapid tightening

of monetary policy by the

Federal Reserve relative to the

rest of the world, terms of trade

shocks, and safe-haven buying

weighed on foreign currencies,

bringing the nominal tradeweighted dollar up 13.4% from

the end of June 2021 to endSeptember 2022; the strongest

upward appreciation occurred in

the third quarter of 2022, when

the nominal trade weighted

dollar rose 5.4%.

In 2022 through end-September,

the dollar appreciated against all

other major trading partners’

currencies except small

depreciations against the

currencies of commodity

exporters Mexico and Brazil. 

The dollar strengthened against

advanced economy currencies in

particular, appreciating by

nearly 26% against the Japanese

yen, 21% against the British

pound, and 16% against the euro during this period. On net, the dollar appreciated most

strongly against advanced economies currencies, by about 15%, whereas the dollar

appreciated against emerging market currencies by about 7% during the same period. 

Much of the dollar appreciation in advanced economy currencies happened recently. From

a longer-term perspective, the dollar appreciated comparably against currencies of

advanced economies and emerging markets between the onset of pandemic-induced

financial market volatility in mid-February 2020 to end-September 2022, strengthening by

11% against advanced economy currencies and 8% against emerging market currencies. 

7 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) -10 -5 0 5 10 15 20 25 30 35

EME basket

Mexico

Vietnam

Singapore

Brazil

India

China

Malaysia

Taiwan

Thailand

Advanced Foreign Economies (AFE)

-10 -5 0 5 10 15 20 25 30 35

2021 H2 2022 H1 2022 H2 (to date through end-Sep.) Net change

U.S. Dollar vs. Major Trading Partner Currencies

(+ denotes dollar appreciation)

Contribution to percent change between end-Jun. 2021 and end-Sep. 2022

Broad dollar index

Sources: FRB, Haver

-10 -5 0 5 10 15 20 25 30 35

AFE basket

Switzerland

Canada

Euro

UK

Japan
14

Against this backdrop, several major trading partners have intervened to stem the pace of

depreciation against the dollar. In September 2022, Japanese authorities intervened in

currency markets. This was their first intervention in currency markets in almost 11 years;

they stated that the intervention aimed to reduce recent heightened volatility of the yen. 

They purchased yen and sold dollars which strengthens the value of the yen, pushing back

against depreciation. 

On a real effective basis, the dollar appreciated 14.2% from end-June 2021 to endSeptember 2022. The real broad dollar is 21.1% above its 20-year average as of endSeptember 2022. In its most recent assessment, the IMF continued to judge the dollar to be

overvalued on a real effective exchange rate basis. Meanwhile, the real effective exchange

rates of several current account surplus economies that the IMF assessed to be

undervalued in 2021 have adjusted minimally or depreciated through September 2022

relative to the 2021 average (e.g., the Netherlands, Malaysia, Thailand, Australia, and

Germany). However, these adjustments only provide partial information about current

exchange rate misalignments, especially given that the significant movements in currencies

this year reflected multiple macroeconomic fundamentals. In particular, temporary terms

-20

-10

0

10

20

30 United States Brazil Mexico Canada India U.K. France Vietnam Switzerland Belgium China Italy Netherlands Singapore

Malaysia Thailand Ireland Korea Euro Area Germany Australia Japan Percent

2021 REER Gap Assessment (mid)1 Adjustments as of Sep-20222

CA Deficit Economies3 CA Surplus Economies

IMF Estimates of Exchange Rate Valuation and Recent Developments Undervalued Overvalued

Sources: IMF 2022 External Sector Report, IMF 2022 Article IV Consultation Staff Report for Ireland, IMF 2022 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 2021 to the 

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

above.

2/Change between 2021 average REER and end-September 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

of trade shocks or policy rate differentials can affect medium-term equilibrium levels

without meaning that exchange rates have departed from fundamentals.

Global Imbalances

Global current account

imbalances8 were broadly

stable in the few years prior to

the pandemic before widening

over 2020 and 2021. The IMF

projects them to remain high

this year before starting to

narrow in 2023. The efforts

to contain the COVID-19

pandemic and its negative

economic effects led to

extraordinary policy

responses that influenced

global trade and shifts in

saving and investment and

drove increases in global

imbalances.

In addition to the lingering

effects of COVID-19, historically

high energy and commodity

prices as a result of Russia’s war

against Ukraine are boosting the

external positions of commodity

exporters while weakening

those of importers. Monetary

tightening has induced currency

realignments which may further

widen global account

imbalances in 2022. 

8 Measured as the sum of absolute current account deficits and surpluses.

-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%

200420052006200720082009201020112012201320142015201620172018201920202021

Percent of Global GDP

International Investment Positions

China Germany Japan

Other Surplus United States Other Deficit

Discrepancy

Note: Discrepancy between aggregate creditor and debtor positions reflect any 

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

Negative discrepancy values suggest missing data predominantly correspond to 

net debtor countries.

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

Net international investment

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. Among major

U.S. trading partners, the

change in net international

investment positions over the four quarters through June 2022 primarily reflect valuation

effects. Notably, in the case of the Netherlands, Switzerland, and Singapore, these valuation

changes led to decreased net foreign asset positions despite large, widening current

account balances.

Capital Flows to Emerging Market Economies

Net capital flows to emerging

market economies remained

under pressure as global

financial conditions

tightened, global growth

prospects dimmed, and

emerging market currencies

broadly depreciated over the

four quarters through June

2022. During this period, net

outflows from emerging

markets of portfolio and

other investment increased

to $781 billion, roughly $334

billion more than the same

period in 2021.

9 Nonresident

net flows remained positive, suggesting that foreign investor demand for emerging market

economy assets remained buoyant despite the multiple pressures weighing on their

external positions, but were offset by continued net outflows from residents.

10 On a

9 In the case of several emerging markets, early and substantial monetary policy tightening may have helped

to lessen the severity of net capital outflows. 

10 These sustained net outflows from residents can reflect both short-term cyclical factors such as changes in

global risk appetite as well as long-term, structural characteristics including reduced investment home bias,

increased sophistication of domestic investments, and increased access to international markets.

-400

-300

-200

-100

0

100

200

300

400

Q1-09 Q1-11 Q1-13 Q1-15 Q1-17 Q1-19 Q1-21

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. 

2022 reflects data through the end-June where available.

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

Capital Outflows

Capital Inflows

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

40 IRL GBR KOR BRA FRA USA MEX DEU JPNITA IND THA CHN MYS BEL NLD CAN CHE SGP Percent of GDP

Change in NIIP Valuation (4Q change as of Jun-22)

CA Balance (4Q sum through Jun-22)

Sources: Haver, IMF, National Authorities

Changes in Net International Investment Positions
17

cumulative basis since the

onset of the pandemic, net

portfolio flows remain well

below pre-pandemic levels;

moreover, net portfolio

outflows have since

accelerated after Russia’s war

against Ukraine, declining by

about $380 billion since

Russia’s war began.

Excluding China, net outflows

of portfolio investment to

emerging markets have been

less pronounced, with a

cumulative decline of $222

billion compared to preinvasion levels.

On a quarterly basis, total net capital flows were positive in the third quarter of 2021,

primarily due to relatively large inflows of other investment. Amid early signs of tightening

global financial conditions in the fourth quarter of 2021, emerging markets experienced net

outflows of portfolio investment and other investment and these outflows outweighed

continued robust foreign direct investment. This trend accelerated in the first quarter of

2022 after the onset of Russia’s war against Ukraine, where net portfolio outflows across

emerging market economies reached a record $174 billion. Net nonresident flows

retreated from emerging market economies for the first time since the onset of the COVID19 pandemic, while residents increased their investments abroad. Net nonresident

outflows picked up in the second quarter of 2022 and net resident outflows remained

relatively unchanged, with overall net portfolio outflows totaling $207 billion, the largest

nominal quarterly portfolio outflow on record. Notably, net portfolio investment flows

retreated from China at a record pace in the first and second quarters of 2022, with net

outflows totaling about $80 billion in each quarter. 

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

that, since end-June, nonresident portfolio flows to emerging markets have been mixed,

particularly across asset classes, and remain relatively volatile as foreign investors parse

out signals regarding the pace of monetary policy tightening across the global economy, the

prospects for continued global growth, and the outlook for China’s economy.

Foreign Exchange Reserves

Global foreign currency reserves totaled $12.0 trillion over the four quarters through endJune 2022, falling by $769 billion. This decrease was driven predominantly by a $576

billion decline due to valuation effects resulting from dollar appreciation over this period,

as well as estimated net sales of $306 billion in foreign exchange. Meanwhile, estimated

interest income of $113 billion offset some of the decline in reserves levels. 

-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) COVID Sudden Stop (2020)

Russian Invasion (2022)

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

following particular shock episodes. 2022 reflects data through the end-June where 

available.

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

Capital Outflows

Capital Inflows

Cumulative Portfolio Flows to Emerging Markets
18

Despite this decline, Treasury assesses that the economies covered in this Report continue

to maintain ample—or more than ample—foreign currency reserves based on 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 2021 suggest reserves are broadly adequate. 

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 3,071.3 -142.7 17% 227% 109%

Japan 1,192.9 -101.3 26% 39% ..

Switzerland 887.4 -131.4 110% 75% ..

India 525.6 -43.1 16% 405% 195%

Taiwan 549.0 5.7 70% 256% ..

Korea 414.5 -26.7 23% 225% 99%

Singapore 305.0 -88.9 74% 25% ..

Brazil 311.3 -25.6 18% 406% 162%

Thailand 201.4 -28.5 40% 313% 249%

Mexico 177.3 -7.7 13% 308% 131%

UK 110.3 -19.2 3% 2% ..

Malaysia 99.7 -6.6 25% 97% 122%

Vietnam 101.4 1.6 27% 257% ..

Canada 79.0 3.1 4% 8% ..

France 52.2 -1.9 2% 2% ..

Italy 46.4 -2.1 2% 4% ..

Australia 34.4 -2.9 2% 9% ..

Germany 37.3 0.3 1% 1% ..

Belgium 10.7 0.1 2% 2% ..

Netherlands 4.8 -1.1 0% 0% ..

Ireland 5.2 -0.1 1% 1% ..

United States 36.3 -6.1 0% 0% ..

World 12,032.0 -768.6 n.a. n.a. ..

Foreign exchange reserves as of end-June 2022.

GDP caluclated as sum of rolling 4Q GDP through Q2-2022.

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-2021. 

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 Q2-

2022; Vietnam as of Q4-2021; Ireland as of Q2-2020.
19

Economic Developments in Selected Major Trading Partners

China

China’s growth momentum slowed markedly in the first half of 2022, with real GDP growth

falling from 4.8% year-on-year in the first quarter to 0.4% year-on-year in the second

quarter compared to 8.1% real growth in full-year 2021. China’s economy faces several

immediate headwinds, including ongoing periodic large-scale lockdowns to curb the spread

of COVID-19, significant weakness in the property sector, and a likely softening in external

demand. Private consumption and credit demand remain weak, partially reflecting a

significant deterioration in consumer confidence amid activity restrictions and elevated

uncertainty. Weak private demand also reflects the unbalanced nature of China’s

macroeconomic policy response to the pandemic, which has favored infrastructure

investment and support for manufacturing firms over direct support for households. In

response to the deteriorating economic outlook, the authorities have modestly loosened

their fiscal and monetary policy stances this year, introducing tax cuts and tax rebates,

facilitating additional financing for local governments and priority sectors, and lowering

policy rates.

China’s current account surplus

of 2.0% of GDP over the four

quarters through June 2022 was

unchanged compared to the

previous four quarters. China’s

goods trade surplus widened

marginally to 3.6% of GDP

during this period compared to

3.5% of GDP in the preceding

four quarters, reflecting both the

continuation of strong external

demand during most of this

period and significant weakness

in domestic demand.11 The services trade deficit remained subdued at 0.5% of GDP in the

four quarters through 2022, largely due to continued restrictions on outbound travel. 

China’s income deficit widened to 1.1% of GDP during the year through June 2022 from

0.8% of GDP previously, largely due to a rapid widening of the investment income deficit in

the second quarter of 2022. 

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

any U.S. trading partner, reaching $397 billion in the four quarters through June 2022 from

$335 billion in the preceding four quarters. China ran a bilateral services trade deficit of

$15 billion during this period. Overall, China’s bilateral goods and services surplus with

11 These trade statistics are based on China’s official balance of payments data compiled by the State

Administration of Foreign Exchange (SAFE). Separate trade data from China’s General Administration of

Customs imply a goods trade surplus of 4.4% of GDP in the year through June 2022. It is not clear at this time

what factors are driving the growing discrepancy between goods trade data released by SAFE and Customs.

-4

-2

0

2

4

6

8

10

200720082009

201020112012201320142015201620172018201920202021

Q2 2022

Percent of GDP

China: Current Account Balance

Income Services Goods Current Account Balance

Sources: SAFE, Haver
20

the United States reached $382 billion during this period, compared with $314 billion in

the preceding four quarters.

China’s financial account swung sharply into a deficit of $101 billion in the first half of 2022

from a surplus of $37 billion in the second half of 2021, contributing to depreciation

pressures on the RMB. The swing in the financial account was driven primarily by large

and sustained nonresident portfolio outflows starting in February 2022. These

nonresident portfolio outflows, $74 billion in the first half of 2022 compared to $88 billion

in net inflows in the second half of 2021, have been concentrated in outflows from China’s

onshore bond market and occur against a backdrop of a growing divergence in China’s

monetary policy stance with that of other major economies and slowing Chinese economic

activity amid the deepening property crisis. In this same context, Chinese residents

significantly accelerated their accumulation of foreign debt securities in the first half of

2022, making net purchases of $85 billion in the first half of 2022 compared to $26 billion

in the preceding six months, providing another source of capital outflows. A net errors and

omissions deficit of $179 billion over the four quarters through June 2022 suggests strong

undocumented capital outflows not captured in identified components of the financial

account, in line with previous years.

The RMB depreciated by 10.5%

against the dollar in the first nine

months of 2022, after

appreciating considerably in

2020 and being relatively flat

against the dollar in 2021. Over

the first nine months of the year,

the RMB depreciated by 1.4%

against the People’s Bank of

China’s (PBOC) China Foreign

Exchange Trade System (CFETS)

nominal basket and by 4.4% on a

real effective basis.12 The RMB’s

moderate depreciation against the CFETS basket this year follows significant appreciation

in in the nominal effective exchange rate in 2020 and 2021. The RMB experienced its

sharpest depreciation against the dollar during two distinct periods of rapid weakening

between mid-April and mid-May as well as mid-August through the most recently available

data. These depreciation episodes occurred during periods in which the dollar was

appreciating rapidly on a nominal effective basis and China’s domestic growth outlook was

deteriorating amid COVID-related developments and property sector stress. 

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

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

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

80

85

90

95

100

105

110

80

85

90

95

100

105

110

Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21

Jan-22

Indexed December 2014 = 100

China: Exchange Rates

Bilateral vs. USD CFETS REER (monthly)

Sources: CFETS, FRB, BIS
21

the daily trading band. 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 volume of forward swap sales and purchases by China’s stateowned banks, and the conversion of foreign exchange proceeds by state-owned

enterprises.

The authorities have implemented several regulatory and administrative measures this

year to counteract RMB depreciation pressures. In late April 2022, following a week of

rapid RMB depreciation, the PBOC announced that it would lower the foreign currency

required reserve ratio to 8% from 9%, loosening onshore FX liquidity conditions. In early

September 2022, after three weeks of rapid depreciation sent the RMB to a two-year low

against the dollar, the PBOC lowered this ratio by an additional two percentage points to

6%. In late September, the PBOC imposed a reserve requirement of 20% on FX forward

contracts. During this period, the PBOC consistently set the daily fix at a level stronger than

the market consensus forecast, which the market has interpreted as the authorities

signaling their discomfort with the pace of depreciation. Moreover, the authorities have

slowed the pace of capital liberalization measures, for example, only increasing the

outbound investment quota under the Qualified Domestic Institutional Investor program

once this year (by $2 billion), compared to seven increases worth a total of $40 billion in

2021. Meanwhile, press reports suggest that the authorities increased their regulatory

scrutiny of overseas investment,

13 warned banks against “aggressively selling” the RMB,14

and later directly instructed state-owned banks to sell dollars and purchase RMB to resist

RMB depreciation.

15 These measures follow a nearly two-year period during which

Chinese policymakers pursued measures that had the effect of counteracting RMB

appreciation pressures.

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.

13 “China Is Said to be Wary of Outbound Spending as Fed Hikes,” Bloomberg, July 14, 2022.

14 “China Regulator Warns Banks Against Yuan Selling,” Reuters, August 24, 2022.

15 “China’s State Banks Told to Stock Up for Yuan Intervention,” Reuters, September 29, 2022. “China’s State

Banks Seen Acquiring Dollars in Swaps Market to Stabilize Yuan,” Reuters, October 17, 2022.
22

China’s headline foreign

exchange reserves decreased by

$143 billion over the four

quarters through June 2022,

standing at $3.1 trillion (on an

unadjusted basis). 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 through

the following two proxy measures. The PBOC’s foreign exchange assets booked at

historical cost increased by $17 billion over the four quarters through June 2022. 

Meanwhile, net foreign exchange settlement data, another proxy measure for foreign

exchange intervention that includes the activities of China’s state-owned banks, recorded

net foreign exchange purchases of $182 billion in the four quarters through June 2022,

adjusted for changes in outstanding forwards. These figures represent estimates of

Chinese foreign exchange intervention during a period primarily characterized by the

continuation of the RMB’s sustained appreciation trend, before the RMB started

depreciating against the dollar in April 2022. As noted in previous Treasury FX Reports,

the divergence between these two 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. Overall, these developments highlight the need for China

to improve transparency regarding its foreign exchange intervention activities.

The authorities should seek to support economic growth in a manner that does not

exacerbate economic imbalances or risks to financial stability—ideally through increased

demand-side support, which would bolster household disposable income and facilitate a

recovery of private consumption. Policy support for the property sector should be

carefully calibrated to mitigate moral hazard while accelerating insolvency and resolution

procedures. China should make use of available fiscal space to develop a systemic

approach to resolving strains in local government finances. Fiscal measures directed

toward households, along with structural reforms like continued liberalization of the

household registration (hukou) system and enhancement of the social safety net, could

protect households amid growing economic uncertainty and support a recovery in private

consumption. Additional reforms aimed at reducing the role of SOEs and lowering barriers

to firm entry and exit could revive flagging productivity growth. 

Japan

Over the four quarters ending in June 2022, economic growth decelerated by about 1

percentage point compared to 2021, averaging roughly 1% on a year-on-year basis. 

Investment levels have continued to decline since the beginning of the pandemic, while net

exports are lower from a terms of trade shock in commodities. However, amid easing

-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

Jan-22

Apr-22

Billion U.S. Dollars

China: Estimated FX Intervention

PBOC FX Assets Bank Net FX Settlement

Sources: PBOC, SAFE, U.S. Treasury Estimates
23

pandemic restrictions, Japanese consumers have increased their consumption with

spending approaching levels last seen in 2019. The IMF forecasts annual GDP growth in

2022 will advance 1.7%, although lower-than-expected growth among major trade

partners or a further deterioration in terms of trade from higher commodities prices pose

downside risks. While inflation has risen recently, reaching 3.0% year-on-year in

September on the back of higher energy prices, monetary policy remains highly

accommodative on the expectation that inflation will not sustainably breach the 2% target.

Japan’s current account surplus

narrowed appreciably over the

four quarters ending in June

2022 from end-2021. The

current account surplus fell from

2.9% of GDP in 2021 to 1.8% of

GDP largely as a result of a

deterioration in the goods

balance. The goods trade

balance fell into deficit, declining

2 percentage points from 0.3% of

GDP in 2021 to -1.2% of GDP

over the four quarters ending in

June 2022 amid higher commodity prices, in particular for energy imports. The services

balance remained in deficit, but at -0.9% of GDP is not materially different than the -0.8%

of GDP level recorded last year. Services balances are in deficit largely due to pandemicrelated travel restrictions imposed as a precaution against COVID-19 transmission. Japan’s

substantial net foreign income balance has helped to keep the current account balance in

positive territory. Net income flows rose to 3.8% of GDP from 3.3% of GDP reflecting rising

foreign profits buoyed by a weak yen. At 2% of GDP, primary income outflows remain

unchanged since 2021. Income outflows are at a modest level for a country of Japan’s size

and development, reflecting, in part, Japan’s low stock of FDI.16 The goods and services

trade surplus with the United States was $62 billion over the four quarters ending in June

2022, up 12%, or $6.6 billion, compared to the same period in 2021.

Japan experienced net capital outflows of 1.2% of GDP over the four quarters ending in

June 2022, driven by sizeable direct investment abroad (1.9% of GDP) and loan, insurance,

and trade credit outflows (1.7%) that were partly offset by net portfolio inflows (4.2% of

GDP) that occurred amid the sustained depreciation of the yen.

The yen depreciated 17.7% against the U.S. dollar over the four quarters ending in June

2022, and 20.4% from the beginning of the year to end-September. The depreciation

broadly reflects widening interest rate differentials between the United States and Japan

resulting from divergent monetary policies; the United States has raised interest rates

while Japan has kept interest rates at historic lows and continues its yield curve control

16 In the four quarters ending 1Q 2022 Japan’s primary income outflows as a share of GDP were the lowest

among G7 economies. Primary income outflows for G7 economies averaged 4.5% of GDP, more than twice

Japan’s levels. 

-4

-2

0

2

4

6 2007

20082009201020112012201320142015201620172018

201920202021

Q2 2022

Percent of GDP

Japan: Current Account Balance

Income Services Goods CAB

Sources: Bank of Japan, Ministry of Finance, Cabinet Office 
24

operations given inflation has not yet met targets. The lower yen also reflects the negative

terms of trade shock coming from higher energy prices and subsequent widening trade

deficit. On a real effective basis, the yen depreciated 15.0% over the first nine months of

the year and currently sits near 50-year lows. The real effective exchange rate has

depreciated even more than the nominal effective exchange rate given Japan’s low inflation

rate compared to its trading partners.

Japan is transparent with respect

to foreign exchange operations,

regularly publishing its

foreign exchange interventions

each month. In September,

Japanese authorities intervened

in the foreign exchange market

in the direction to stem the pace

of depreciation of the yen, citing

excess volatility and disorderly

exchange rate movements. It

was the first time since 1998 that

Japan intervened to support the

yen. Prior to September, Japan last intervened in 2011 to weaken the yen. 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 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 ease restrictions and financial

assistance with more targeted support as health conditions allow. Japan should pivot its

focus on implementing structural reforms that would improve potential growth and raise

levels of wealth and welfare. To achieve this, policymakers should promote reforms to

small and medium enterprises that encourage the exit of non-viable firms and entry of

firms with stronger potential to raise efficiency and productivity; increase labor mobility

and digitalization; encourage green investment; 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 3.5% over the four quarters ending in June 2022. Growth was led

by strong private consumption and supportive government spending, which helped buoy

the Korean economy amongst a weakening in the external sector in the first half of 2022

driven by Russia’s war against Ukraine and COVID-related shutdowns in China. The

Korean government passed a supplementary budget that raised the 2022 fiscal deficit to

5.1% of GDP, from 4.4% in the prior year. The government’s 2023 budget proposal expects

to narrow the fiscal deficit to 2.6%. With a low debt-to-GDP ratio of approximately 50%,

Korea should carefully calibrate fiscal policy to avoid unnecessarily rapid fiscal adjustment. 

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
25

Korea’s central bank began to tighten monetary policy from August 2021 to address

financial imbalances and above-target inflation, most recently implementing an

extraordinary 50 basis point increase to a policy rate of 3.0% in October 2022. 

Korea’s current account surplus

declined sharply to 4.0% of GDP

over the four quarters ending in

June 2022 from 4.9% a year

prior. The decline was driven by

a decrease in Korea’s goods

surplus due to weakening

external demand and increased

energy import prices. Some of

the decline was offset by an

increase in the services balance,

which was positive on an

annualized basis for the first

time since 1999. The small services surplus was due to some lingering pandemic effects

that have kept the transportation and tourism balances elevated. Moderation in Korea’s

current account surplus continues a narrowing trend that began in 2015 and reflects some

normalization of pandemic-induced demand for Korean exports coupled with rising energy

prices as a result of Russia’s war against Ukraine. Korea’s bilateral trade surplus with the

United States, inclusive of goods and services, increased to $32 billion over the four

quarters ending in June 2022, up from $13 billion over the same period a year prior. 

The Korean won depreciated in

2022, weakening 17.0% against

the dollar and 6.8% on a real

effective basis through

September. Thus, despite the

relatively sharp depreciation

against the dollar, the real

effective index has not moved

nearly as much, as many of

Korea’s trade partners are also

weakening against the dollar.

This follows a weakening in

2021 on both bilateral and real

effective bases by 8.6% and 5.3% respectively. The sharp decline in Korea’s goods trade

balance driven by rising energy prices as well as sizeable equity outflows stemming from

rising global interest rates have been factors in persistent won weakness. Korea’s national

pension fund’s total foreign asset holdings decreased by around $10 billion over the four

quarters ending in June 2022, from $310 billion to $300 billion, likely driven by declines in

foreign asset prices.

-4

-2

0

2

4

6

8

10

200720082009201020112012201320142015

201620172018201920202021

Q2 2022

Percent of GDP

Korea: Current Account Balance

Income Services Goods CAB

Sources: Bank of Korea, Haver

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

Korea: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
26

Korea reported net foreign

exchange sales of $38 billion

(2.1% of GDP) in the spot market

over the four quarters ending in

June 2022 in the context of a

weakening won. That is, the

intervention is in the direction to

strengthen Korea’s currency. 

Treasury estimates that the

Korean authorities sold foreign

exchange at increasing amounts

throughout the twelve-month

report period in line with

increasingly rapid won depreciation. Korea maintains ample foreign exchange reserves at

$394 billion as of September 2022, equal to 2.1 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.

After supporting the economic recovery from the COVID-19 pandemic, Korean authorities

have deployed monetary and fiscal policies to arrest inflation and financial imbalance

concerns while continuing to support vulnerable households. Going forward, the

authorities should encourage equitable and green growth policies that will raise incomes

for vulnerable workers while undergirding energy security and economic resilience. 

Progress on structural reforms, such as encouraging broad-based participation in the labor

market, strengthening social safety net programs, and integrating carbon reduction

commitments into economic planning would help secure economic opportunity for

disadvantaged workers, reduce old-age poverty, and insulate Korea from external energy

shocks.

The Euro Area

Despite a strong economic recovery from the pandemic in 2021, growth in the euro area

has been struggling against headwinds for the past year. The recovery first decelerated

during the fourth quarter of 2021 due to rising energy prices and the spread of the

Omicron variant. Although growth in many parts of the euro area picked up by the second

quarter of 2022 to an annualized rate of 3.2%, economic spillovers from Russia’s war

against Ukraine have exacerbated supply chain woes and reduced real disposable incomes

through rising energy costs and inflation. While the IMF expects the euro area economy to

grow 3.1% in 2022, it projects much variation within, with Germany growing 1.5% and

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 $27 billion in estimated net foreign exchange sales through the four quarters ending in

June 2022. Differences in estimated Bank of Korea operating profits likely drove the gap between Treasury’s

estimate and the Korean authorities’ reported intervention figure.

-10

-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

Jan-22

Apr-22

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
27

Spain’s economy growing 4.3%. The IMF also projects momentum to slow with fourth

quarter-over-fourth quarter growth for the euro area in 2022 of 1.0%. 

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

was key to the robust recovery in 2021, and prior to Russia’s war against Ukraine, the

aggregate fiscal policy posture was already on track to remain supportive through 2022. 

Russia’s war against Ukraine has led to record energy prices, resulting in further outlays, as

governments attempt to shield consumers and businesses from the impacts, accelerate the

drive toward energy independence, as well as to bolster defense spending and respond to

the influx of refugees. Given the need for further expenditures, the European Commission

announced that the fiscal rule will be suspended through 2023, but it did not advocate a

broad fiscal impulse; rather, it recommended governments move to a prudent fiscal policy

while enacting temporary, targeted measures as necessary in response to spillovers.

Fiscal measures are funded in part through the roughly $747 (€750) billion Next

Generation EU (NGEU) pandemic recovery package agreed in July 2020. NGEU is now

operational, with $80 (€80) billion in grants and $33 (€33) billion in loans from the

Recovery and Resilience Fund (RRF)—the main component of the NGEU—distributed to

member states thus far. The RRF consists of up to $337 (€338) billion in grants and $384

(€386) billion in loans. While member states have applied for all of the RRF’s grants,

roughly $219 (€220) billion in lending capacity remains. 

Russia’s war against Ukraine and the spike in inflation accelerated the ECB’s policy

normalization timetable. Prior to the war, the pace of net asset purchases under its

Pandemic Emergency Purchase Program (PEPP) and Asset Purchase Program (APP) had

slowed from end-October 2021; net asset purchases under the PEPP ended as of April 2022

and under the APP as of July 2022. When the ECB began signaling its intent to shift toward

normalization this spring, Italian spreads over German bonds started to rise, reigniting

fears about Italy’s debt sustainability. In response, the ECB Governing Council convened an

ad hoc meeting on June 15, announcing that it would flexibly reinvest PEPP redemptions to

counter fragmentation and mandating the completion of a new anti-fragmentation

instrument. On July 21, the ECB announced its new Transmission Protection Instrument

(TPI) alongside its decision to hike rates for the first time since 2011, bringing the deposit

rate out of negative territory to 0%. The TPI allows for purchases of sovereign bonds “to

counter unwarranted, disorderly market dynamics that pose a serious threat to the

transmission of monetary policy across the euro area.” There is no preset limit on

purchases under the TPI. While the ECB enumerated criteria for a country’s bonds to be

eligible, it left substantial ambiguity by noting that the criteria will be “dynamically

adjusted.” At its September 8 monetary policy meeting, the ECB hiked rates again by 75

basis points, bringing the deposit rate to 0.75%.

While the recovery gained momentum, so too did inflation, with headline inflation

accelerating to 9.9% year-on-year in September. Though some of the inflationary forces

are likely transitory factors, Russia’s war against Ukraine has added substantial new

pressure to prices and there is some risk of higher inflation expectations becoming

entrenched. In its September projections, the ECB forecasts headline inflation of 8.1% in
28

2022 in its baseline scenario. Despite this surge, the ECB anticipates that inflation will

return to around its target level of 2% by the end of its forecast window in 2024.

The euro area current account surplus fell to 0.9% of GDP in in the four quarters through

June 2022, down from 3.1% in the same period in 2020-21. As supply chain disruptions,

COVID-19 outbreaks, and high imported energy prices impact European exports, the IMF

expects the current account surplus to be 1.0% of GDP in 2022. In its August 2022 External

Sector Report, the IMF assessed that the euro area’s external position in 2021 was

moderately stronger than the level implied by medium-term fundamentals and desirable

policies.

The euro has depreciated by

20% against the dollar since the

beginning of 2021 as widening

interest rate differentials

between the United States and

Europe supported dollar

strength. Since the beginning of

Russia’s war against Ukraine

through end-September, the euro

depreciated 12.3% against the

dollar, as Russia’s war has

impacted the energy landscape

and raised concerns about economic activity. In real effective terms, the euro depreciated

2.4% since February 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. Ongoing pandemic restrictions, supply chain

disruptions, and high energy prices led to a stagnation of economic activity in the fourth

quarter of 2021, pulling down overall 2021 GDP growth to 2.6%. With Russia’s war

creating new economic headwinds across Europe, and Germany being particularly

impacted by natural gas cutoff’s from Russia, the IMF’s October WEO forecasts project

German real GDP growth to decelerate to 1.5% in 2022; growth flatlined in the first half of

the year, with annualized first quarter growth of 0.8% and second quarter growth of 0.4%.

The core 2022 German federal budget, $99 (€100) billion special fund for military

modernization, and four energy relief packages totaling up to $287 (€295) billion have

extended Germany’s 2020-21 period of greater utilization of its fiscal space, although the

German government intends to return to technical compliance with the debt brake in 2023. 

German headline inflation has continued to accelerate through 2022 largely due to energy

prices and supply constraints. Heightened inflation is weighing on consumer confidence,

with inflation expectations continuing to rise and consumer sentiment falling to a record

low in September. 

70

80

90

100

110

120

130

70

80

90

100

110

120

130

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

Jan-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
29

Germany’s current account

narrowed to 5.4% in the four

quarters through June 2022,

largely due to high imported

energy prices and supply chain

bottlenecks. Its current account

remains in sizable surplus

despite these shocks. It has had

a large surplus as a share of GDP

for well over a decade as

production is consistently above

domestic absorption. A major

economy with such a

consistently large surplus requires offsetting borrowing on a persistent basis by the rest of

the world on net. Germany’s bilateral goods and services trade surplus with the United

States stood at $72 billion for the four quarters through June 2022 up from $65 billion in

the same period in 2020-21. 

The German government took strong 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 in 2022. However, Germany needs to significantly improve its

chronic spending under-execution, which contributed to persistent fiscal surpluses prepandemic. Treasury encourages the Scholz government to deploy its substantial fiscal

space in 2023 and beyond, including through strengthening efforts to combat climate

change, enhance energy security, and reinvigorate investment—which would help external

rebalancing proceed at a reasonable pace. Deploying fiscal space could help moderate

Germany’s average annual current account surplus of nearly $285 billion and average

annual fiscal surplus of $4.5 billion over the past decade. Alternatively (or in conjunction),

incentives or tax changes to encourage greater investment and consumption could help

address the chronically low level of domestic demand.

Malaysia

Malaysia’s economy registered robust growth in the first half of 2022, on the back of

firming domestic demand, resilient goods exports, and continued policy support for

households and businesses. The authorities project economic momentum will be sustained

through the remainder of 2022, in line with the IMF’s projection of 5.4% real GDP growth,

though the outlook remains vulnerable to a further weakening of global growth. Following

the shocks to energy and food prices in early 2022 stemming from Russia’s war against

Ukraine, the authorities have provided significant fiscal support intended to buffer

households and temper rising prices through subsidy and cash aid spending, including

broad-based fuel subsidies, that is projected to reach 5% of GDP this year. This fiscal

support has kept the fiscal deficit above 5% of GDP, where it has been since 2020. Wider

fiscal deficits in recent years and the drag on activity from the pandemic and more recent

shocks have pushed up Malaysia’s public debt-to-GDP close to the federal government’s

statutory debt limit of 65% of GDP. With subsidies and other administered prices helping

-4

-2

0

2

4

6

8

10

200720082009201020112012

201320142015201620172018201920202021

Q2 2022

Percent of GDP

Germany: Current Account Balance

Income Services Goods CAB

Sources: Deutsche Bundesbank
30

limit the rise in headline inflation—which stood at 4.5% year-on-year in September—Bank

Negara Malaysia (BNM) has favored a gradual pace of monetary tightening amid continued

slack in the economy. BNM has raised its key policy rate a cumulative 75 basis points to

2.5% as of September since its initial rate increase in May.

Malaysia has consistently

maintained current account

surpluses over the last several

years, though the surplus has

narrowed substantially in the

first half of 2022 and stood at

2.5% of GDP over the four

quarters through June 2022. 

Malaysia’s goods surplus has

narrowed since the second half

of 2021 as import growth

outpaced export growth, while

Malaysia’s large income deficit

widened amid elevated earnings on foreign investor holdings. Malaysia’s services deficit

remains wider than pre-pandemic levels from still-subdued travel-related receipts but has

started to narrow amid border reopening measures. 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 $39 billion in

the four quarters through June 2022. Malaysia and the United States have strong supply

chain linkages in key industries, particularly electronics and related parts. Malaysia

continues to register a large bilateral goods trade surplus with the United States, which

registered $39 billion in the four quarters through June 2022, led by exports of electrical

machinery and parts. Conversely, Malaysia engages in relatively limited bilateral services

trade with the United States—about $6 billion in gross bilateral services trade flows in the

four quarters through June 2022—and bilateral services trade was roughly balanced over

the same period.

Malaysia has established a track

record of two-way intervention

in the foreign exchange market

in recent years. Malaysia does

not publish data on its foreign

exchange intervention; however,

the authorities have conveyed

credibly to Treasury that net

sales of foreign exchange in the

four quarters through June 2022

were $6.7 billion or 1.7% of GDP. 

That is, the intervention is in the

-10

-5

0

5

10

15

20

25

20072008

200920102011201220132014201520162017201820192020

2021

Q2 2022

Percent of GDP

Malaysia: Current Account Balance

Income Services Goods CAB

Sources: Department of Statistics, Malaysia

-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

Jan-22

Apr-22

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
31

direction to strengthen Malaysia’s currency. According to internal Treasury estimates, net

sales accelerated over the first half of the year amid net portfolio outflows in the second

quarter of 2022 and other depreciation pressures on the ringgit. Foreign exchange

reserves stood at around $95 billion at end-September 2022, down $10 billion compared to

end-2021. Reserves remain broadly adequate according to standard adequacy metrics,

including that of the IMF.

Like many regional peer

currencies, the ringgit has faced

downward pressure last year

and into 2022. On net, the

ringgit has depreciated 9.9%

against the U.S. dollar since the

beginning of the year through

end-September. Despite this

slide against the dollar, the

ringgit has appreciated 1.8% on

a nominal effective basis year-todate through September as the

ringgit has outperformed the

currencies of some other major trading partners, including the yen, won, and euro. Over

the same period, the ringgit has appreciated by only 0.2% on a real effective basis as

inflation in Malaysia has been lower, on average, than in its trading partners, though

inflation differentials have narrowed in recent months.

The authorities should aim for gradual and steady fiscal consolidation to contain public

debt and rebuild fiscal buffers, while preserving space to upgrade the social protection

system and bolster key investments (e.g., climate resilience and energy transition). As part

of those efforts, the authorities should replace the largely untargeted fuel subsidies with

targeted support measures, which would allow the authorities to continue providing

support for vulnerable populations while reducing Malaysia’s elevated subsidies bill. A

more effective social protection system along with targeted public investments would help

foster inclusive and sustainable growth while also supporting external rebalancing. 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’s economic growth momentum has slowed in 2022, with sequential growth

moderating in the first half of 2022, after the country saw a strong recovery of 7.6% real

GDP growth in 2021. External shocks stemming from Russia’s war against Ukraine have

exacerbated domestic inflationary pressures and slowing growth momentum from

Singapore’s major trading partners has weighed on Singapore’s economic outlook. The

authorities anticipate real GDP growth will come in at 3-4% this year, supported by a

70

80

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
32

continued recovery in domestic-oriented and travel-related sectors, but external

headwinds will likely continue to pose downside risks to near-term growth.

In this context, the authorities announced a $1.1 billion (0.3% of GDP) support package in

June to help mitigate increased living costs through targeted relief measures for businesses,

workers, and households. While the authorities’ initial fiscal year (FY) 2022 budget (April

2022-March 2023) aimed to narrow the deficit to 0.5% of GDP, from 0.9% of GDP the year

prior, the enactment of the June support package will likely leave the fiscal deficit broadly

unchanged compared to FY 2021. The authorities have signaled that the government

stands ready to provide additional fiscal support should economic conditions deteriorate

but remain careful not to implement policy actions that may stoke inflationary pressures. 

Meanwhile, the authorities have reiterated their commitment to raise the goods-andservices tax from 7% to 9% in two stages beginning next year.

The Monetary Authority of Singapore (MAS), which uses an exchange-rate based regime for

implementing monetary policy, was one of the first central banks in the region to initiate a

tightening cycle in response to burgeoning inflation pressures. MAS began tightening

monetary policy in October 2021, and has since further tightened monetary policy four

times, including two off-cycle moves in January and July 2022. Nonetheless, price

pressures have intensified this year amid both external shocks and a relatively tight

domestic labor market, with realized inflation consistently coming in above MAS forecasts

from earlier in 2022. As of September, headline inflation reached 7.5% year-on-year and

core inflation stood at 5.3% year-on-year. MAS projects that inflation will remain elevated

in the near term, reflecting underlying constraints in global commodity and labor markets

alongside resilient private consumption expenditure.

Singapore’s outsized current

account surplus averaged 17% of

GDP over the last ten years and

reached 19.4% of GDP in the four

quarters through June 2022,

owing primarily to a massive

goods surplus, offset in part by a

sizable income deficit. 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 250% of GDP, one of the highest levels

in the world.

Singapore’s bilateral goods and services trade deficit with the United States was $31 billion

in the four quarters through June 2022, driven primarily by a deficit in services trade. 

Singapore has long run a bilateral services deficit with the United States, and this deficit has

-20

-10

0

10

20

30

40

200720082009201020112012201320142015201620172018201920202021

Q2 2022

Percent of GDP

Singapore: Current Account Balance

Income Services Goods CAB

Sources: Monetary Authority of Singapore, Department of Statistics
33

widened in the last decade to reach $22 billion in the four quarters through June 2022. Key

Singaporean services imports from the United States include research and development,

intellectual property, and professional and management services. Singapore’s bilateral

goods trade deficit with the United States widened to $9 billion in the four quarters

through June 2022, largely due to a substantial increase in fuel and fuel product imports

from the United States and a decline in medicinal product exports to the United States, in

line with a broader normalization of pre-pandemic trade flows. 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.

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 April and October

2022, MAS published data on

intervention covering the second

half of 2021 and first half of

2022, respectively, indicating

total net purchases of $64 billion

in foreign currency in the four quarters through June 2022, equivalent to 15.6% of GDP. 

These purchases have acted to stem appreciation pressures at a juncture where inflation

has been rising further above target. Official foreign exchange reserves totaled $276 billion

(67% of GDP) at end-September 2022. Despite MAS’ significant net purchases of foreign

exchange over the last year, official reserves held by MAS have declined this year as MAS

has transferred more than $160 billion of excess reserves to the Singaporean government

for longer-term management by GIC, one of Singapore’s sovereign wealth and investment

funds).

18 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. 

18 From March 2022, Singapore’s government began employing a new type of non-marketable security to

facilitate the transfer of excess official reserves from MAS to the government. The Reserves Management

Government Securities (RMGS) are issued by the government to MAS in exchange for excess reserves at the

time of transfer. Additional information about RMGS may be found here:

https://www.mas.gov.sg/statistics/reserve-statistics/reserves-management-government-securities 

-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
34

Compared to other currencies,

the Singapore dollar has

depreciated modestly against the

U.S. dollar so far this year, while

outperforming many other

regional currencies. On net, the

Singapore dollar has depreciated

5.8% against the U.S. dollar since

the beginning of the year

through end-September.

Meanwhile, the Singapore dollar

has strengthened against most

other currencies in the region, in

some cases reaching record highs against other trading partners, as MAS aggressively

tightened monetary policy. Consequently, the Singapore dollar appreciated 6.1% and 7.4%

on a nominal effective and real effective basis, respectively, through end-September.

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 refrain from one-sided foreign

exchange intervention and excessive reserve accumulation. As inflationary pressures ease,

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 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.

Taiwan

Treasury conducted enhanced analysis of Taiwan in its April 2021 and December 2021

Reports, and in-depth analysis of Taiwan in its June 2022 FX Report. In May 2021,

Treasury commenced enhanced bilateral engagement with Taiwan in accordance with the

2015 Act.19 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 with Taiwan’s authorities.

19 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. 42-44 (June 2022), available at

https://home.treasury.gov/system/files/136/FINAL_Spring_2022_FXR.pdf

80

90

100

110

120

130

80

90

100

110

120

130

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

Jan-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
35

Taiwan’s real GDP grew by 3.9% over the four quarters ending in June 2022, largely driven

by growth in fixed asset investment, down from 6.7% a year prior. Net exports and private

consumption declined slightly over the same period, primarily due to factors in the second

quarter of 2022 that included rising imports due to increased energy prices, COVID-19

lockdowns in China, and a surge in domestic COVID-19 cases. In April, the authorities

extended targeted fiscal relief to offset the effects of the pandemic, including expanded

unemployment benefits and direct transfers to impacted households and businesses,

through unspent special budget funding from 2021. The central bank began policy

normalization to address elevated inflation with an extraordinary 25 basis point hike in

March 2022 followed by two 12.5 basis point hikes in June and September 2022.

Taiwan’s current account

surplus was $116 billion (14.7%

of GDP) through the four

quarters ending in June 2022,

compared to $112 billion (15.4%

of GDP) in the four quarters

prior. The current account

surplus was driven by Taiwan’s

$84 billion goods trade surplus

(10.6% of GDP), down from $89

billion (12.2% of GDP) in the

four quarters prior. Goods

exports remained elevated due

to pandemic-induced shifts in patterns of global demand, though outsized growth in

electrical machinery exports has slowed and may have peaked in the first quarter of 2022. 

Import growth drove the slight decline in Taiwan’s current account goods surplus as rising

prices of imported commodities weighed on the external position of energy importing

economies. Further deterioration in the external environment, including sluggish growth

in China and Europe, a cyclical downturn in the semiconductor market, and the effects of

Russia’s war against Ukraine on energy prices, could further weigh on Taiwan’s goods

surplus going forward, but at present it remains outsized relative to GDP.

Taiwan’s services balance stood at $15 billion (1.9% of GDP) over the Report period,

continuing a decade long strengthening trend that began after a record services deficit of

3.7% of GDP in 2012. Nevertheless, Taiwan’s services surplus over the last two years is the

result of pandemic distortions, namely in rising freight transport service exports and the

decline in overseas tourism due to Taiwan’s ongoing strict travel restrictions. Taiwan’s

services surplus is likely to moderate as the authorities loosen travel restrictions and as

shipping constraints moderate in the second half of 2022.

Taiwan recorded a $49 billion bilateral trade surplus over the Report period, up from $33

billion a year prior. The trade surplus was primarily composed of goods trade and was

driven by semiconductors and electronic goods exports. Taiwan’s bilateral services trade

-5

0

5

10

15

20

200720082009201020112012201320142015201620172018201920202021

Q2 2022

Percent of GDP

Taiwan: Current Account Balance

Income Services Goods CAB

Sources: Taiwan central bank, Haver
36

with the United States was a small $2 billion surplus over the Report period, from a $2

billion deficit a year prior.

The New Taiwan Dollar (TWD)

weakened throughout the first

nine months of 2022,

depreciating 12.7% against the

dollar and 3.7% on a real

effective basis, after steadily

strengthening through 2021. 

Russia’s war against Ukraine

drove a sharp depreciation of the

TWD in February 2022. Since

then, lingering geopolitical

uncertainty, rising energy prices,

and persistent large portfolio

equity outflows caused in part by the tightening global interest rate environment have

continued to drive the TWD weaker against the dollar. From August 2022, a broad-based

slowdown in both Taiwan’s tech and non-tech exports further contributed to TWD

depreciation pressures. 

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 $8 billion (1.0% of

GDP) in foreign exchange sales

over the four quarters ending in

June 2022, with $0.4 billion in

purchases occurring in the

second half of 2021 and $8.3

billion in sales occurring in the first half of 2022. That is, the intervention is in the direction

to strengthen Taiwan’s currency. Treasury estimates the majority of these purchases

occurred in March and April 2022 following Russia’s war against Ukraine. Taiwan

publishes its data on foreign exchange intervention on a semi-annual basis, with a threemonth lag.

As Taiwan transitions away from pandemic restrictions, the authorities should continue to

deploy a careful mix of policies that support domestic demand, raise the labor share of

income, and better insulate Taiwan from external shocks. Fiscal support for vulnerable

workers, including short-term and young workers, should not be withdrawn too quickly

and where appropriate some of these programs could persist beyond the pandemic

emergency. The authorities should explore regulatory and fiscal mechanisms to encourage

80

90

100

110

120

80

90

100

110

120

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

Jan-20Jan-21Jan-22

Indexed to 20Y Avg = 100

Taiwan: Exchange Rates

Bilateral vs. USD NEER REER

Sources: FRB, Bank for International Settlements

-6

-4

-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

Jan-22

Apr-22

Billion U.S. Dollars

Taiwan: Estimated FX Intervention

Sources: Taiwan central bank, U.S. Treasury estimates
37

green growth and meet Taiwan’s 2050 net-zero carbon emissions target, including by

setting a 2030 intermediate emission target, which would improve Taiwan’s resilience to

future external energy shocks. Foreign exchange intervention should be limited and allow

currency movements in line with economic fundamentals.

Enhanced Analysis Under the 2015 Act

Switzerland

Treasury conducted enhanced analysis of Switzerland in its December 2020 and April 2021

FX Reports, in-depth analysis in its December 2021 Report, and enhanced analysis in its

June 2022 Report. In early 2021, Treasury commenced enhanced bilateral engagement

with Switzerland in accordance with the 2015 Act.20 Since Switzerland meets 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 following a relaxation of virus restrictions, and the economy grew by

4.2% in 2021 overall. Uncertainty over the outlook remains high given the associated

adverse spillovers, including with respect to inflationary pressures and refugee flows, of

Russia’s war against Ukraine and given the continued spread of COVID-19 variants. Thus

far the war against Ukraine has primarily affected the Swiss economy through an increase

in commodity prices, which is likely to increase companies’ production costs and constrain

consumption. The Swiss National Bank’s (SNB) baseline scenario for 2022 is GDP growth

of roughly 2.0%, slightly weaker 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 more than 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 IMF expects further narrowing to 0.3% in

2022. The authorities adopted a “dispatch” on September 16, 2022 that extended the

current CO2 law until 2024 and included measures for incentivizing reductions in

greenhouse gas emissions for the 2025-2030 period following the defeat of a revised CO2

20 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
38

law in a June 13, 2021 referendum. The laws offer the potential for an increase in fiscal

spending to meet climate targets in the near term. 

Higher inflation in trading

partners and expected monetary

tightening in other European

economies and the United States

eased appreciation pressures on

the franc in 2021. Over the first

nine months of 2022, the Swiss

franc depreciated 7.1% against

the dollar and appreciated 7.5%

against the euro. On a nominal

effective and real effective basis,

the Swiss franc appreciated by

5.3% and 1.1% respectively, over

the same period. The Swiss National Bank has noted that if there were to be an excessive

appreciation of the Swiss franc, they would purchase foreign currency, but likewise, if the

Swiss franc were to weaken, they would consider selling foreign currency. On September

22, 2022, the Swiss National Bank raised policy rates out of negative territory by 0.75

percentage points to 0.5%. 

The Swiss authorities have a

history of restrained

macroeconomic management,

particularly a fiscal policy

approach that prioritized debt

reduction for several decades

beginning in the 1990s. 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 valueadded global industries (e.g., pharmaceuticals and merchanting).

21 These factors have

contributed to persistent, and often extremely large, current account surpluses during

recent decades. In 2021 the current account surplus rebounded to 7.4% of GDP, following

an unusually small surplus of 1.5% of GDP during 2020.

22 In the four quarters through

June 2022, the current account surplus was 8.0% of GDP, and the IMF currently projects a

21 The authorities have agreed to implement the OECD-led global corporate tax reforms, which will imply

bringing rates up to 15 percent for all cantons when it becomes effective. 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.

22 At the time of the December 2021 Report, the 2020 current account surplus totaled just 1.2% of GDP.

-10

-5

0

5

10

15

2007200820092010201120122013201420152016

20172018201920202021

Q2 2022

Percent of GDP

Income Services Goods Current Account Balance

Sources: Swiss National Bank, Haver

Switzerland: Current Account Balance

70

80

90

100

110

120

130

140

70

80

90

100

110

120

130

140

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

Jan-20Jan-21Jan-22

Indexed to 20Y Avg = 100

Switzerland: Exchange Rates

Bilateral vs. USD NEER REER

Sources: FRB, Bank for International Settlements
39

6.2% of GDP current account surplus for 2022. The recent current account surplus

continues to be due to high exports of goods and merchanting. Despite the large recent

current account surpluses, Switzerland’s net international investment position declined

relative to GDP as of June 2022 to 81% from 92% in 2021, making it a smaller net lender to

the rest of the world when compared to the size of its economy.23 

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 the government to offset with 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 Swiss parliament approved an extended timeframe for the reduction of the

remainder of COVID-related debt until 2035 with the option of lengthening the timeframe

to 2039 under extraordinary circumstances. The fiscal savings will be achieved through

spending underruns of CHF1 billion per year and a measure that recognizes profits shared

by the SNB as revenue. This would avoid any expenditure cuts or measures to increase tax

revenue. The Swiss have also undertaken measures to further 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. 

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. 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

23 This decline reflects valuation effects.
40

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

$16 billion in the four quarters ending in June 2022 compared to $25 billion in the four

quarters ending in June 2021 as goods exports to the U.S. decreased and services imports

from the U.S. increased. This decline moves Switzerland’s goods and services trade surplus

with the United States much closer to the $15 billion threshold established to assess

whether a trading partner has a significant bilateral trade surplus with the United States.

During the same period Switzerland’s goods trade surplus with the United States declined

to $37 billion, versus $43 billion during the same period one year ago. 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 $21 billion in the four quarters ending in June 2022,

compared to $19 billion in the four quarters ending in June 2021. 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. While gold exports are on a slight downward path, the

geopolitical uncertainty caused by Russia’s war against Ukraine is expected to support

demand for gold exports in the near term.

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 IMF classifies the Swiss franc as a de facto crawl-like

arrangement 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

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 and

domestic growth. From the start

-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

Jan-22

Apr-22

Billion U.S. Dollars

Sources: Swiss National Bank, U.S. Treasury estimates 

Switzerland: Estimated FX Intervention
41

of the COVID-19 pandemic until September 2022, the SNB 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 became 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 the four quarters ending in June 2022 amounted to $23 billion, or 2.8% of

GDP, compared with $28 billion or 3.5% of GDP in the four quarters through June 2021. 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 June 2022, reserves covered 75% of short-term

debt and 110% of GDP.

In its June 16, 2022 monetary policy decision, the SNB increased its main policy rate by

50bp to -0.25% in response to increased inflationary pressure, and on September 22, 2022

the SNB raised the policy rate another 75bps to 0.5%. Switzerland’s inflation rate

increased to 0.6% in 2021 and 3.2% in September 2022. The SNB attributes the increase to

spillovers from Russia’s war against Ukraine including increased prices in natural gas and

electricity. In their latest communication, the SNB projects inflation to reach 3.0% in 2022,

above its 2% ceiling, before falling to 2.4% in 2023, based on the assumption that the policy

rate remains at 0.5% 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 are continuing a separate but related Standing Macroeconomic

and Financial Dialogue to discuss macroeconomic issues. 
42

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, on or after one year of the 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 June 2022, unless otherwise noted) are

provided in Table 1 (p. 18) and Table 2 (p. 45). 

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 June 2022. This includes all U.S. trading
43

partners whose bilateral goods and services surplus with the United States in the four

quarters through June 2022 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 June 2022.

24 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 June 2022. 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 focused 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 substantial current account “gap” to be “material” for the

purposes of enhanced analysis. Highlighted in red in column 2a of Table 2 are the seven

economies that met these thresholds over the four quarters through June 2022. No

economy that did not already meet the 3% current account surplus threshold had a

substantial current account gap.

25 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. 

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.26 Columns 1a and 1c in Table 2 provide Treasury’s assessment of this

24 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.

25 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.

26 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.
44

criterion.27 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 June 2022, per Treasury estimates.

27 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.
45

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 0.2 2.5 5 51

Mexico 0.0 0 N o -0.8 0.5 -10 118

China 0.1 — 1 * 17 — 182 Yes 2.0 1.2 367 382

Japan 0.0 0 N o 1.8 -1.6 82 62

Germany 0.0 0 N o 5.4 -2.1 228 72

United Kingdom 0.0 0 N o -4.3 0.1 -138 -14

Korea -2.1 -38 N o 4.0 0.0 71 32

Ireland 0.0 0 N o 13.1 21.0 68 9

India -0.9 -30 N o -2.1 0.0 -69 48

Switzerland 2.8 23 Yes 8.0 5.0 65 16

Taiwan -1.0 - 8 Yes 14.7 3.7 116 49

Netherlands 0.0 0 N o 5.5 -2.7 56 -34

France 0.0 0 N o -0.4 -0.4 -10 18

Vietnam -2.9 ** -11 N o -1.6 -2.8 - 6 105

Singapore 15.6 64 Yes 19.4 4.0 80 -31

Brazil -1.6 -28 N o -1.9 0.9 -34 -30

Italy 0.0 0 N o 1.2 -1.7 24 41

Malaysia -1.7 ** - 7 N o 2.5 -0.7 10 39

Thailand -3.4 ** -17 N o -3.3 -8.4 -17 38

Australia -0.2 - 3 N o 2.2 3.1 36 -25

Memo: Euro Area 0.0 0 N o 0.9 -1.7 131 118

† 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 

June 2022.

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.

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
46

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 845 747 97 51 77 -26 40.3 35.6 4.6 2.4 3.7 -1.2

Mexico 791 726 65 118 119 0 58.2 53.4 4.8 8.7 8.7 0.0

China 765 700 65 382 397 -15 4.2 3.8 0.4 2.1 2.2 -0.1

Japan 291 219 72 62 64 - 2 6.3 4.7 1.5 1.3 1.4 0.0

Germany 281 206 75 72 69 3 6.7 4.9 1.8 1.7 1.6 0.1

United Kingdom 267 127 140 -14 - 8 - 7 8.2 3.9 4.3 -0.4 -0.2 -0.2

Korea 208 174 34 32 39 - 7 11.8 9.8 1.9 1.8 2.2 -0.4

Ireland 196 97 100 9 64 -55 37.9 18.7 19.2 1.7 12.3 -10.7

India 181 129 53 48 39 9 5.5 3.9 1.6 1.4 1.2 0.3

Switzerland 176 93 83 16 37 -21 21.7 11.4 10.3 2.0 4.6 -2.6

Taiwan 150 127 23 49 47 2 19.0 16.1 2.9 6.2 5.9 0.2

Netherlands 139 101 38 -34 -23 -11 13.7 10.0 3.7 -3.3 -2.3 -1.0

France 134 91 43 18 14 3 4.6 3.1 1.5 0.6 0.5 0.1

Vietnam 132 129 3 105 107 - 1 34.6 33.9 0.7 27.6 27.9 -0.4

Singapore 117 71 46 -31 - 9 -22 28.4 17.2 11.2 -7.4 -2.2 -5.2

Brazil 113 89 24 -30 -17 -13 6.5 5.1 1.4 -1.7 -1.0 -0.7

Italy 106 90 16 41 40 1 5.1 4.4 0.8 2.0 2.0 0.0

Malaysia 78 73 6 39 39 0 19.9 18.5 1.4 9.9 10.0 -0.1

Thailand 72 68 4 38 39 - 1 14.3 13.6 0.8 7.6 7.8 -0.2

Australia 68 43 25 -25 -13 -11 4.1 2.6 1.5 -1.5 -0.8 -0.7

Memo: Euro Area 1074 750 323 118 180 -62 7.4 5.2 2.2 0.8 1.2 -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
47

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. 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 Public28 No Yes As it 

happens*

None

UK Monthly/

3-7 days

Yes COFER29 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 Annually30 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

?

31 COFER No No

Taiwan Monthly/

1 week

Yes No Yes Yes Semiannually3 months

Korea Monthly/

1 week

Yes COFER Yes Yes Quarterly 3 months

28 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.

29 “COFER” means the country provides the data confidentially to the IMF through its Composition of Foreign

Exchange Reserves (COFER) database.

30 Australia publishes daily foreign exchange intervention one time per year in October. Australia has not

intervened in foreign exchange markets since November 2008.

31 Treasury staff have questions about the consistency of China’s reported derivatives position.
48

Singapore Monthly/

1 week

Yes COFER Yes Yes Semiannually3 months

Thailand Weekly/1 

week

Yes No Yes Yes32 Semiannually3 months

Malaysia Biweekly/

1 week

Yes No Yes Yes33 Semiannually3 months

Vietnam Monthly/

2-3 

months

No No Yes Yes34 Semiannually3 months

* Intervention is published officially in certain reports on a regular basis but in practice intervention is

announced on the day it takes place.

32 Thailand discloses its foreign exchange intervention to Treasury with consent to publish in the FX Report.

33 Malaysia discloses its foreign exchange intervention to Treasury with consent to publish in the FX Report.

34 Vietnam discloses its foreign exchange intervention to Treasury with consent to publish in the FX Report.
49

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 June 2022

based on the most recent available data. Taiwan, which had met all three criteria for

enhanced analysis under the 2015 Act in the December and April 2021 Reports and met

two of the three criteria for enhanced analysis in the June 2022 Report, again met two of

the three criteria for enhanced analysis in this Report. In total, seven economies—China,

Japan, Korea, Germany, Malaysia, Singapore, and Taiwan—constitute Treasury’s

Monitoring List. 

Italy, India, Mexico, Thailand, and Vietnam have been removed from the Monitoring List in

this Report, having met only one out of three criteria for two consecutive Reports.

With regard to the economies covered in this Report:

• China had met one of the three criteria in every Report from the October 2016 Report

through the April 2021 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, having a

material current account surplus and a significant bilateral trade surplus with the

United States. For the four quarters ending June 2022, China met one of the three

criteria (significant bilateral trade surplus) and therefore remains on the Monitoring

List. 

• Japan had met two of the three criteria in every Report from the April 2016 Report

through the June 2022 Report, having a material current account surplus and a

significant bilateral trade surplus with the United States. Over the four quarters

through June 2022, Japan met one of the three criteria, having a significant bilateral

trade surpluses with the United States.

• Germany has met two of the three criteria in every Report since the April 2016 Report,

having a material current account surplus and a significant bilateral trade surplus 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. 

For the four quarters ending June 2022, Malaysia met only one criterion (significant

bilateral trade surplus). 

• 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.

• 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. 
50

Taiwan met all three of the criteria in the April and December 2021 Reports. Taiwan

met two of the three criteria in the June 2022 Report and continues to meet 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. 

Switzerland once again exceeded the thresholds for all three criteria over the four quarters

through June 2022, as it had in the last Report which covered the four quarters through

December 2021. Therefore, Treasury is continuing enhanced analysis of Switzerland’s

macroeconomic and exchange rate policies in this Report. Since Switzerland has once

again exceeded the thresholds for all three criteria, Treasury will also continue its

enhanced bilateral engagement with Switzerland to discuss the Swiss authorities’ policy

options to address the underlying causes of its external imbalances.

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.

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.
51

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.