Macroeconomic and 

Foreign Exchange 

Policies of Major 

Trading Partners of the 

United States

REPORT TO CONGRESS

U.S. DEPARTMENT OF THE TREASURY

OFFICE OF INTERNATIONAL AFFAIRS

April 2021
Contents

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

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

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

ECONOMIC DEVELOPMENTS IN SELECTED MAJOR TRADING PARTNERS ....................................................... 15

ENHANCED ANALYSIS UNDER THE 2015 ACT .................................................................................................. 40

SECTION 2: INTENSIFIED EVALUATION OF MAJOR TRADING PARTNERS.......................54

KEY CRITERIA......................................................................................................................................................... 54

SUMMARY OF FINDINGS......................................................................................................................................... 58

GLOSSARY OF KEY TERMS IN THE REPORT ...............................................................................60

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 economy experienced a tumultuous year in 2020 as a result of the SARS-Cov-2

(COVID-19) pandemic. The unprecedented nature of the crisis as well as the difficulty in

separating temporary versus structural changes makes analysis of current accounts and

exchange rates an even more difficult task than usual. 

The impact of the virus led to a deep global contraction in the first half of 2020. 

Governments implemented public health policies and restrictions on mobility to arrest the

spread of the virus, and households and businesses became more cautious in spending and

investment decisions. Governments also provided historic economic support to offset the

damaging effects of the virus through direct fiscal spending as well as indirect measures. In

addition, central banks took prompt actions to support economic conditions through

expansions and extensions of monetary easing as well as policies aimed at stabilizing

financial markets. Global trade also contracted in the first half of 2020 resulting from

ruptures in supply chains and declining demand. Services were particularly hard hit as

travel and tourism collapsed. For many emerging market and developing economies the

global shock resulted in large capital outflows and sharp downward pressures on their

currencies. 

Global economic conditions improved in the second half of the year as policy measures

provided support for individuals and businesses. Stabilizing financial conditions and the

recovering global economy led to a reversal in exchange rates and capital flows from early

in the year. Goods trade and commodity prices picked up but tourism and travel continued

to remain depressed. Strong domestic policy support buoyed demand in some countries

while in countries where support was limited domestic demand remained weak. The

COVID crisis is likely to continue to affect current account positions over the next year as

recoveries accelerate in some countries and lag in others. The longer-term effects of the

crisis on global trade and incomes will become clearer over time as structural changes

emerge. 

The International Monetary Fund (IMF) estimates the global economy contracted 3.3% in

2020, the worst recession since the Great Depression. The IMF expects global growth to

return in 2021, but recovery will be unequal among economies and depend upon the

evolution of the pandemic, vaccine access, the degree to which policy support can limit

longer-term economic scarring, as well as developments in financial conditions and

commodity prices. Against this backdrop, it is critical that fiscal and monetary policies in

the major economies remain supportive. International economic cooperation and support

for the most vulnerable countries will remain necessary to support a robust recovery and

prevent a divergence in growth paths between advanced economies and emerging market

and developing economies.

Over the four quarters through December 2020, a number of economies have experienced

significant expansions in their current account surpluses as the pandemic drastically

affected global trade, including China, Taiwan, and Singapore, while other economies,

including Germany and Vietnam, have maintained large current account surpluses, which
2

allowed for external asset stock positions to widen further. The total U.S. goods trade

deficit widened to 4.7% of GDP in the fourth quarter of 2020 from 3.7% of GDP at the end

of 2019. The U.S. current account deficit expanded to 3.5% of GDP in the fourth quarter, 1.6

percentage points larger than at the end of 2019 and the largest U.S. deficit as a share of

GDP since the final quarter of 2008. Treasury remains concerned by how persistent

current account imbalances will evolve as the effects of the pandemic subside. With

heightened risks of economic scarring, it is important that governments bolster domesticled rather than externally supported growth. 

Treasury is also concerned by certain economies raising the scale and persistence of

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

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

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

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

stability of the international monetary system. Additionally, all members remain

committed that their exchange rates reflect underlying economic fundamentals and note

that exchange rate flexibility can facilitate the adjustment of their economies. 

G-20 members have also committed to:

• consult closely on foreign exchange market developments,

• refrain from competitive devaluations, and

• not target exchange rates for competitive purposes. 

G-7 economies, meanwhile, remain committed to:

• market-determined exchange rates,

• using domestic tools to meet domestic objectives, and

• consulting closely and cooperating as appropriate with regards to action in foreign

exchange markets. 

IMF members have committed to avoid manipulating their exchange rates to gain an unfair

competitive advantage over other members. 

Nevertheless, a number of economies have conducted foreign exchange market

intervention in a persistent, one-sided manner. Over the four quarters through December

2020, five major U.S. trading partners — Vietnam, Switzerland, Taiwan, India, and

Singapore — intervened in the foreign exchange market in a sustained, asymmetric manner

with the effect of weakening their currencies. Three of these economies — Vietnam,

Switzerland, and Taiwan — exceeded the two other thresholds established by Treasury to

identify potentially unfair currency practices or excessive external imbalances, which could

impede U.S. growth or harm U.S. workers and firms. 

Treasury Analysis Under the 1988 and 2015 Legislation

The analysis in this report is guided by Section 3001-3006 of the Omnibus Trade and

Competitiveness Act of 1988 (1988 Act) and Sections 701 and 702 of the Trade Facilitation

and Trade Enforcement Act of 2015 (2015 Act) as discussed in Section 2. 
3

In this Report, Treasury has reviewed 20 major U.S. trading partners with bilateral goods

trade with the United States of at least $40 billion annually against the thresholds Treasury

has established for the three criteria in the 2015 Act:

(1) Persistent, one-sided intervention in the foreign exchange market occurs when net

purchases of foreign currency are conducted repeatedly, in at least 6 out of 12 months,

and these net purchases total at least 2% of an economy’s gross domestic product

(GDP) over a 12-month period.2 

(2) A material current account surplus is one that is at least 2% of GDP over a 12-month

period. 

(3) A significant bilateral trade surplus with the United States is one that is at least $20

billion over a 12-month period.3 

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 and criteria in the 1988 Act and the 2015 Act are distinct, a trading

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

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

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

Treasury Conclusions Related to the 2015 Act

Vietnam again exceeded the thresholds for all three criteria under the 2015 Act over the

four quarters through December 2020. Treasury has updated its enhanced analysis of

Vietnam in this Report. In early 2021, Treasury commenced enhanced bilateral

engagement with Vietnam and is working with the Vietnamese authorities to develop a

plan with specific actions to address the underlying causes of Vietnam’s currency

undervaluation.

Switzerland again exceeded the thresholds for all three criteria under the 2015 Act over the

four quarters through December 2020. Treasury has updated its enhanced analysis of

Switzerland in this report. In early 2021, Treasury commenced enhanced bilateral

2 The Report covers data from the 12-month period ending in December 2020. These quantitative thresholds

for the scale and persistence of intervention are considered sufficient on their own to meet this criterion. 

Other patterns of intervention, with lesser amounts or less frequent interventions, might also meet this

criterion depending on the circumstances of the intervention.

3 Treasury focuses in this Report on trade in goods only, as it has done in past Reports. The United States has

a surplus in services trade with many economies in this Report, including China, Japan, Korea, Singapore, and

Switzerland, and to a lesser extent, Taiwan and Vietnam. Taking into account services trade would reduce the

bilateral trade surplus of these economies with the United States.
4

engagement with Switzerland and is discussing with the Swiss authorities options to

address the underlying causes of Switzerland’s external imbalances.

Taiwan exceeded the thresholds for all three criteria under the 2015 Act over the four

quarters through December 2020. Treasury has conducted enhanced analysis of Taiwan in

this Report and will also commence enhanced bilateral engagement with Taiwan in

accordance with the 2015 Act. The bilateral engagement will include urging the

development of a plan with specific actions to address the underlying causes of Taiwan’s

currency undervaluation.

Taiwan has maintained a tightly managed floating exchange rate regime since the late

1970s. Although Taiwan has liberalized capital controls in recent decades, the central bank

continues to actively intervene in the foreign exchange market. Over many years, these

practices have resulted in a structurally undervalued exchange rate that has failed to adjust

in the face of Taiwan’s persistently large current account surpluses. Although the New

Taiwan Dollar (TWD) has appreciated modestly in nominal and real effective exchange rate

terms over the past decade, the authorities’ foreign exchange purchases and other, less

formal exchange rate management practices have slowed the pace and scale of external

adjustment, preventing the TWD from fully reflecting macroeconomic fundamentals. 

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 the December 2020 Report, Treasury found that Switzerland and Vietnam each

met the standards for currency manipulation for the four quarters through June 2020. For

the four quarters ending in 2020, based on initial enhanced engagements with Vietnam and

Switzerland under the 2015 Act, further analysis, and data, Treasury has determined that

there is insufficient evidence to make a finding that either economy (or any other economy

covered in the Report) manipulates its exchange rate for either of the purposes referenced

in the 1988 Act. Nevertheless, consistent with the 1988 Act, Treasury considers that its

continued enhanced engagements with Switzerland and Vietnam, as well as a more

thorough assessment of developments in the global economy as a result of the COVID-19

pandemic, will enable Treasury to better determine whether either of these economies

intervened in currency markets in 2020 to prevent effective balance of payments

adjustment or gain an unfair competitive advantage in trade. For Taiwan, Treasury will

initiate enhanced engagement in accordance with the 2015 Act and expects that

engagement will help Treasury to make the determination required under the 1988 Act for

the period of review. Meaningful actions to address policy distortions and increase data

transparency will be critical for making progress under these engagements. Treasury will

also continue to consider whether economies that do not trigger enhanced engagement

manipulate their currencies for the purposes referenced in the 1988 Act.
5

Treasury Assessments of Other Major Trading Partners

Pursuant to the 2015 Act, Treasury has found in this Report that no major trading partner

other than Vietnam, Taiwan, and Switzerland met all three criteria under the 2015 Act

during the four quarters ending December 2020. 

Pursuant to the 2015 Act, Treasury has also established a Monitoring List of major trading

partners that merit close attention to their currency practices and macroeconomic policies. 

An economy meeting two of the three criteria in the 2015 Act is placed on the Monitoring

List. Once on the Monitoring List, an economy will remain there for at least two

consecutive Reports to help ensure that any improvement in performance versus the

criteria is durable and is not due to temporary factors. As a further measure, Treasury will

add and retain on the Monitoring List any major U.S. trading partner that accounts for a

large and disproportionate share of the overall U.S. trade deficit even if that economy has

not met two of the three criteria from the 2015 Act. In this Report, the Monitoring List

comprises China, Japan, Korea, Germany, Ireland, Italy, India, Malaysia, Singapore,

Thailand, and Mexico. All except Ireland and Mexico were covered in the December

2020 Report.

Chinese economic growth in 2020 exceeded that of other large economies, but has been

driven by the early resumption of manufacturing and increased external demand,

especially for medical supplies, personal protection equipment and electronics. Questions

remain about the continued strength of the Chinese recovery absent a sustained increase in

household consumption. While official data do not show significant accumulation of

foreign exchange assets by the central bank, China’s failure to publish foreign exchange

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

mechanism and the activities of state-owned banks warrant close monitoring of renminbi

(RMB) developments going forward.

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

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

review the appropriate metrics for assessing how policies contribute to currency

misalignments and global imbalances. 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 for the four quarters

through December 2020 and, where data are available, developments through end-March

2021. This Report covers developments in the 20 largest trading partners of the United

States, whose bilateral goods trade with the United States exceeded $40 billion over the

four quarters through December 2020. These economies’ total goods trade with the United

States amounted to more than $3.1 trillion in the four quarters through December 2020,

more than 80% of all U.S. goods trade during that period. For assessments of the criteria in

Section 701 of the 2015 Act, data over the four quarters through December 2020 are

considered. 

U.S. Economic Trends

The U.S. economy continues to recover from the severe disruptions created by the COVID19 pandemic and the various measures imposed in 2020 to limit the spread of the virus. As

economic activity resumed in May 2020 and the federal government’s stimulus policies

took hold, real GDP grew by 33% in the third quarter, and by 4.3% in the fourth quarter. As

of the fourth quarter of 2020, the economy had recovered more than three-fourths of the

cumulative loss of output during the first half of 2020. In addition, employment rebounded

more rapidly than expected: from May 2020 through February 2021, employers added

about 12.9 million payroll jobs, or 58% of the number lost last year between March and

April. As of early 2021, retail sales have risen above their pre-pandemic trend, and national

indices of manufacturing and service sector activity have signaled expansion in each of the

past ten months, rising to multi-decade highs in March. A year ago, deflationary pressures

were seen briefly at the start of the pandemic. In contrast, inflation picked up in March and

is likely to be elevated in the near-term, reflecting base effects from low energy prices last

year and the shuttering of the many service sector industries. This inflation should be

transitory, potentially returning to trend after household consumption, business activity,

and labor markets normalize from the pandemic.

Though the second federal economic aid package passed in December 2020 should boost

growth in the first half of 2021, a full recovery nonetheless depends on effectively resolving

the pandemic and its associated difficulties. To that end, the enactment of the American

Rescue Plan (ARP) in early March 2021, the gathering momentum seen in vaccine

dissemination, and the ongoing reopening of schools and businesses all augur for the

return of the U.S. economy to a firmer footing in 2021 as a whole. In early March, the

consensus of private forecasters predicted real GDP growth of 5.9% in 2021 on a fourth

quarter over fourth quarter basis, and by 2.9% on the same basis in 2022. 

U.S. Government Policy Response

The U.S. government in 2020 responded to the effects of the COVID-19 pandemic with a

range of significantly expansionary fiscal and monetary policies, including an

unprecedented level of fiscal assistance and the reduction of the federal funds rate to nearzero, as discussed in the December 2020 Report.
7

In March 2021, President Biden signed into law the ARP Act, which features $1.9 trillion in

additional economic aid, providing the building blocks to a more robust recovery. Since the

biggest barrier to a full recovery is the persistence of the pandemic, the ARP Act provides

additional funding for addressing COVID-19 infections and vaccinating the population. In

the meantime, more and more families struggle to make ends meet as the pandemic lingers. 

Accordingly, the ARP Act provides Economic Impact Payments to low- to middle-income

families, expands social safety net programs for the economically vulnerable, and extends

and expands unemployment insurance benefits. In addition, the ARP Act assists state and

local governments and creates new loans and grants for small businesses to ensure that no

sector of the economy is left behind before the recovery begins in earnest.

Economic Output in 2020

Starting very early in 2020, the spread of the COVID-19 virus and the measures to contain it

led to a historically severe and sharp economic contraction. In early June 2020, the

National Bureau of Economic Research’s Business Cycle Dating Committee identified the

peak of the most recent U.S. expansion as having occurred in February 2020, making it the

longest expansion on record at 128 months. 

During the latter part of March 2020, stay-at-home orders, closures of non-essential

businesses, and voluntary social distancing caused a steep deterioration in economic

activity, and real GDP dropped 5.0% at an annual rate during the first quarter of 2020, and

by an historic 31.4% at an annual rate in the second quarter of 2020. These declines

marked the first back-to-back quarterly decreases in real GDP in over a decade. Combined,

real GDP advanced 18% at an annual rate during the second half of 2020, contrasting with

the 19% drop during the first half of 2020. Reflecting the contraction of domestic demand,

and with it, demand for imports, net exports added 0.9 percentage points on average

during the first half of 2020, but as consumption of domestic as well as imported goods

recovered over the second half of 2020, net exports subtracted about 2.4 percentage points

from growth during that period. 

Labor Markets, Inflation, and Outlooks in 2020 and Early 2021

Labor markets deteriorated sharply in the spring of 2020. The economy lost nearly 22.2

million jobs during March and April last year, and widespread business closures and

declining aggregate demand pushed the unemployment rate up to 14.8% in April 2020 – a

post-WWII high. In addition, the labor force participation rate (LFPR) fell to 60.2%, its

lowest level since January 1973, and the prime-age LFPR dropped to a 37-year low of

79.9%. Since May 2020, however, labor markets have had a robust recovery, with a net

14.0 million payroll jobs having been added by March 2021 — 62% of the jobs lost in

March and April 2020. In addition, the unemployment rate has dropped 8.8 percentage

points from the April 2020 peak to 6.0% in March 2021. The LFPR has rebounded to

61.4% as of February, while the prime-age LFPR has recovered to 81.1%.
8

Average hourly earnings growth for all private nonfarm workers remains elevated at 4.2%

over the year through March 2021. However, large fluctuations in employment —

particularly in industries with lower wage workers — complicate the assessment of recent

trends. The growth rate of real average hourly earnings remained elevated through

February, but the growth rate slowed to 1.5% over the year through March 2021—or 0.5

percentages points below the year-earlier reading of 2.0%. The slower wage growth was

due in part to transitory base effect inflation that started to be realized in March 2021, as

well as employment and wage composition effects.

Over the past several months, 12-month inflation measures had been over 1 percentage

point below year-ago levels. In recent months these gaps have narrowed. But over the

year through March 2021, the Consumer Price Index (CPI) rose 2.6%, 1.1 percentage points

above the year-earlier pace and was the fastest pace of inflation since August 2018. The

12-month pace in March reflected in large part the base effect from recovering energy

prices after they plummeted in early-to-mid 2020. The core CPI, which excludes food and

energy, increased 1.6% over the 12 months through March 2021, but was still 0.5

percentage points below the 2.1% rate on a year-over-year basis through March 2020. 

Supply-chain disruptions have also elevated inflation measures recently, and core prices

may rise more rapidly in coming months — albeit on a temporary basis — due to base

effects, where the year-over-year inflation is measured from the depressed levels that

accompanied the March to May lockdowns in 2020.

Households’ outlooks recovered modestly in the second half of 2020 but fluctuated based

on changing perceptions of the likelihood of additional fiscal assistance, the health of labor

markets, and the availability of vaccines. Meanwhile, the Institute for Supply Management

(ISM) surveys for manufacturing and service-sector business activity have signaled

expansion since June 2020. In March, the manufacturing index rose to its highest level

since 1983 while the services index climbed to the highest level in its almost 24-year

history.

Public Finances

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

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

economy. At the end of FY 2020, the federal government posted a deficit of $3.13 trillion

(15.0% of GDP), up $2.15 trillion from the $984 billion deficit (4.6% of GDP) posted in FY

2019. Federal receipts totaled $3.42 trillion in FY 2020, down $44 billion (1.3%) from FY

2019. Net outlays for FY 2020 were $6.55 trillion, up $2.1 trillion (47.3%) from FY 2019,

largely due to the fiscal measures enacted to counter the pandemic and consequent

recession. As of March 2021, the monthly federal deficit was $660.0 billion, bringing the

12-month total deficit to $4.09 trillion.

At the end of FY 2020, gross federal debt was $26.9 trillion. Federal debt held by the

public, which includes debt held by the Federal Reserve but excludes federal debt held by

government agencies, rose from $16.8 trillion at the end of FY 2019 (78.0% of GDP) to
9

$21.0 trillion by the end of FY 2020 (99.3% of GDP). As of March 2021, gross federal debt

was $28.1 trillion, while federal debt held by the public totaled $22.0 trillion.

U.S. Current Account and Trade Balances

The U.S. current account

deficit rose in the fourth

quarter of 2020 to 3.5% of

GDP, up 0.1 percentage

points from the third

quarter. This was the

largest deficit as a share of

GDP since the fourth quarter

of 2008. In the fourth

quarter of 2020, nearly all

major current account

transactions increased for a

second consecutive quarter. 

This mainly reflects the

continued resumption of

trade and other business

activities that had ceased or

were restricted due to COVID19 in the first half of 2020. 

Both exports and imports of

goods rose, with the increase

in imports outpacing the

growth in exports. Receipts

of income rose more rapidly

than payments of income,

resulting in a larger income

surplus, which partially offset

the expanded deficit on goods. 

Prior to the second quarter of

2020, the headline U.S.

current account deficit had

been quite stable, around 2-

2.5% of GDP since 2015. 

The U.S. goods trade deficit

widened to 4.7% of GDP in the

fourth quarter of 2020, up less

than 0.1 percentage points

from the third quarter. 

Relative to the third quarter,

goods exports increased 8.7%

-40

-30

-20

-10

0

10

20

30

2006 2008 2010 2012 2014 2016 2018 2020

Percent

U.S. Trade Growth

Note: Trade growth calculated as year-over-year percentage change in the sum 

of exports and imports.

Source: U.S. Census Bureau, Haver 

-5

-4

-3

-2

-1

0

1

2

3 H1 2012

H2 2012H1 2013H2 2013H1 2014H2 2014H1 2015

H2 2015H1 2016H2 2016H1 2017H2 2017H1 2018H2 2018H1 2019H2 2019H1 2020H2 2020

Percent of GDP

U.S. Current Account Balance

Income Services Goods Current Account Balance

Sources: Bureau of Economic Analysis, Haver

-7

-6

-5

-4

-3

-2

-1

0

2006 2008 2010 2012 2014 2016 2018 2020

Percent of GDP

U.S. Goods Balance

Non-Oil Balance

Oil Balance

Source: Bureau of Economic Analysis, Haver
10

while imports rose 6.0%, mainly as a result of strengthened global demand. The goods

trade deficit has been relatively stable in recent years, in the range of 4-4.5% of GDP, except

for the narrower deficit in the first quarter of 2020.

At the end of the fourth quarter, the U.S. net international investment position marked a net

liability of $14.1 trillion (65.6% of GDP), a deterioration of $0.2 trillion compared to the

third quarter. The value of U.S.-owned foreign assets was $32.2 trillion, while the value of

foreign-owned U.S. assets stood at $46.3 trillion. 

International Economic Trends

The outbreak of COVID-19 at the end of 2019 and its spread across the world in early 2020

plunged the global economy into its sharpest and deepest recession since the Great

Depression. While many economies experienced sharp rebounds in activity during the

third quarter as their economies started to reopen, outturns in the fourth quarter were

mixed due to renewed social distancing in response to virus surges. The IMF estimates that

the global economy contracted by 3.3% in 2020. 

Prospects for 2021 appear brighter but with a high degree of uncertainty. The

development and distribution of vaccines offer hope of defeating the virus. The IMF

forecasts global growth of 6.0% in 2021. Nevertheless, recoveries are likely to remain

uneven — due in part to disparate access to vaccinations and the recurrence of lockdowns

— and a host of risks threaten recovery. Even as economies recover, the scars from the

pandemic, including lost human capital accumulation and higher debt loads, will continue

to drag down medium-term prospects for some countries. 

The unprecedented nature of the shock led to an unprecedented policy response by many

governments and central banks. The IMF projects government deficits of advanced

economies quadrupled from 2.9% of GDP in 2019 to 11.7% of GDP in 2020. A continued

strong and supportive policy response remains crucial to a sustained recovery.

-40

-30

-20

-10

0

10

20

30

40

50 China Vietnam Taiwan Hong Kong Mexico Thailand Brazil India

2020 H1

2020 H2

-40

-30

-20

-10

0

10

20

30

40

50 Korea Ireland Japan Switzerland Netherlands United States Germany Singapore Canada BelgiumItaly France UK Percent change (annualized rate)

Real GDP Growth

Note: Based off semester average of Q/Q SAAR growth rates. China, India, Mexico, and Vietnam based off Y/Y NSA data for the final 

quarter of each period.

Sources: National Authorities, Haver

Advanced Economies Emerging Market Economies
11

Foreign Exchange Markets4

In the early months of 2020, the

spread of COVID-19 set off a dash for

safety to the dollar. The dollar

strengthened against the currencies

of nearly every major trading

partner.5 Central bank action to ease

dollar funding strains and support

the economy, fiscal stimulus,

stabilization of financial markets, and

a gradual reopening of economies

helped lessen the rush to the dollar

in the months after March 2020. The

nominal trade-weighted dollar

weakened 11.8% from March 23 to

the end of December, leaving it 2.7%

weaker for 2020 as a whole. Since

the beginning of 2021, the dollar has

resumed strengthening against many

— though not all — currencies, and

the nominal trade-weighted dollar

has appreciated 2.3% through endMarch. 

On a real effective basis, the dollar

depreciated 2.9% in 2020. Despite

this decline, the real dollar ended

2020 nearly 5% above its 20-year

average. Sustained dollar strength is

concerning given that the IMF

continues to judge that the dollar is overvalued on a real effective basis (see chart below). 

The real effective exchange rates of several surplus economies that the IMF assessed to be

undervalued in 2019 depreciated in 2020 (e.g., Thailand, Malaysia, Singapore, and

Vietnam). 

Though foreign exchange market functioning deteriorated in the early months of 2020 in

response to the COVID-19 shock, swift central bank action calmed conditions and markets

4 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.

5 Perhaps most notably, increasing market concerns about Brazil’s debt sustainability and historically low

real interest rates have weighed on the Brazilian real during Brazil’s particularly severe experience with the

pandemic (despite significant central bank intervention to stem depreciation).

-20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 50

EME basket

Brazil

Mexico

Thailand

India

Malaysia

Singapore

Vietnam

Korea

Taiwan

China

Sources: FRB, Haver

-20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 50

AFE basket

Japan

Switzerland

Canada

UK

Euro

Advanced Foreign Economies (AFE)

-20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 50

H1 2020 H2 2020 2021 YTD (end-Mar) Net change

U.S. Dollar vs. Major Trading Partner Currencies

(+ denotes dollar appreciation)

Contribution to percent change relative to end-December 2019

Broad dollar index

Emerging Market Economies (EME)
12

have been functioning more smoothly in the period since. The dollar continues to be the

world’s principal currency in international foreign exchange markets, reflecting its

dominant global position both in terms of market turnover (being bought or sold in 88% of

all currency trades) and trade settlement.6

Global Imbalances

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

pandemic. The IMF April 2021 WEO reports that, at the global level, current account

surpluses and deficits narrowed early in the crisis, with the effects of a sharp contraction in

activity in early-2020 and the ensuing global recession weighing heavily on tourismdependent economies and commodity producers. Later in the year, global imbalances

subsequently widened with rising trade and commodity prices. Some surpluses remained

very large in 2020. Among major U.S. trading partners, the very large surpluses of

Germany, Netherlands, Korea, Taiwan, Malaysia, and Singapore have each remained

significant as a share of GDP, with the combined surpluses of these economies totaling

$575 billion over the four quarters through December 2020 (roughly equivalent to 0.7% of

global GDP). Japan’s current account surplus is slightly smaller than in 2019 as a share of

GDP at 3.3%, but in dollar terms is comparatively high at $165 billion. China’s surplus is

6 Currency market turnover according to the 2019 BIS Triennial Central Bank Survey of Foreign Exchange and

OTC Derivatives.

-20

-10

0

10

20 United States Canada U.K. France India Mexico Brazil Belgium

Italy China Korea Euro Area Switzerland Japan Ireland Netherlands Germany Vietnam Singapore

Malaysia Thailand Percent

2019 REER Gap Assessment (mid)1 2020 REER ∆2

CA Deficit Economies3 CA Surplus Economies

IMF Estimates of Exchange Rate Valuation Undervalued Overvalued Sources: IMF 2020 External Sector Report, IMF 2019 Article IV Consultation Staff Report for Ireland, IMF 2020 Article IV Consultation 

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

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

2019 to the level consistent with the country's medium-term economic fundamentals and desired policies. The midpoint of the gap

range is depicted above. For Ireland, the 2018 REER gap is used.

2/Change through December 2020 versus 2019 average. For Ireland, change through December 2020 versus 2018 average.

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.
13

even higher in dollar terms at $299 billion in the four quarters through December 2020, its

highest level since 2015. Additionally, external stock positions are expected to continue

widening in 2020 to historical peaks; however, this generally reflects sharp drops in GDP

rather than an increase of creditor or debtor positions.

In many cases, these persistent imbalances reflect past policy distortions. Moreover, global

imbalances have been affected by shifts in saving and investment driven by the COVID-19

crisis and policy responses, although it is too soon to determine the extent to which these

shifts may be permanent. In general, and especially at a time of recovering global growth,

adjustments to reduce excessive imbalances should occur through a symmetric rebalancing

process that sustains global growth momentum rather than through asymmetric

compression in deficit economies — the channel which too often has dominated in the past. 

As the global economic recovery path continues to stabilize, it is critical to adopt policies

that allow for a narrowing of excessive surpluses and deficits, particularly additional fiscal

measures where policy space is available to support languishing recoveries. 

-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
14

Capital Flows

Following the sharp

outflow of portfolio

debt and equity from

emerging markets in

early 2020, portfolio

flows began to

rebound in the second

quarter, though net

capital flows

remained suppressed

in the third quarter as

other investment

outflows accelerated

to $152 billion, driven

by large resident

outflows from China

($129 billion).

7 Net

inflows continued in

the fourth quarter of the year as positive vaccine-related developments were followed by a

surge in portfolio bond and equity inflows to emerging markets. Higher frequency data

(from sources beyond quarterly balance of payments data) suggest that, since end-2020,

the pace of portfolio equity inflows to emerging markets has slowed substantially. 

7 Meanwhile, China experienced strong portfolio inflows in the second and third quarter of 2020, totaling

roughly $86 billion.

-300

-200

-100

0

100

200

300

Q3-08 Q3-10 Q3-12 Q3-14 Q3-16 Q3-18 Q3-20

USD Billions

Net Capital Flows to Emerging Markets

Financial Derivatives (Net) Other Investment (Net)

Direct Investment (Net) Portfolio Investment (Net)

Net Capital Flows (excl reserves)

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

2020 reflects data through the end-December where available.

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

Capital Outflows

Capital Inflows
15

Foreign Exchange Reserves

Global foreign currency

reserves were also affected

by the COVID-19 pandemic. 

After declining by $122

billion in the first quarter

of 2020, reserves have

since risen, increasing in

each of the final three

quarters of 2020 to reach

$12.7 trillion at the end of

last year. Over the second

and third quarters of 2020,

reserve level growth was a

product both of large net

foreign exchange

purchases—totaling $286

billion—and valuation

effects caused by the

depreciation of the dollar

against other currencies,

which contributed $254

billion to the rise in

reserves. In the fourth

quarter of 2020, the

increase in global foreign

currency reserves was

attributable to net foreign

exchange purchases amounting to $253 billion, as well as valuation effects (which

expanded reserves $209 billion) from the continued depreciation of the dollar relative to

other currencies.

The economies covered in this Report continue to maintain ample — or more than ample

— foreign currency reserves compared to standard adequacy benchmarks. Reserves in

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

and anticipated import costs. Meanwhile, other economies, particularly low-income

countries, are facing shortages of foreign exchange reserves to address external financing

needs. Foreign exchange intervention to further reserve accumulation should be avoided. 

Economic Developments in Selected Major Trading Partners

China

Chinese economic growth in 2020 exceeded that of other large economies, but has been

driven by the early resumption of manufacturing and increased external demand,

FX Reserves 

(USD Bns)

1Y Δ FX 

Reserves 

(USD Bns)

FX Reserves 

(% of GDP)

FX Reserves 

(% of ST debt)

China 3,216.5 108.6 22% 261%

Japan 1,312.8 56.9 26% 39%

Switzerland 1,013.2 215.1 135% 85%

India 542.2 115.3 21% 527%

Taiwan 529.9 51.8 79% 295%

Korea 430.1 32.2 26% 298%

Singapore 359.3 82.4 106% 32%

Brazil 342.7 -3.8 24% 450%

Thailand 246.0 31.5 49% 472%

Mexico 184.2 13.6 17% 374%

UK 139.6 2.1 5% 2%

Malaysia 102.6 3.2 30% 117%

Vietnam 88.4 10.4 26% 313%

Canada 76.8 3.2 5% 10%

France 55.2 3.4 2% 2%

Italy 46.6 3.9 2% 4%

Germany 36.9 0.9 1% 2%

Belgium 11.0 0.5 2% 2%

Netherlands 5.9 1.5 1% 1%

Ireland 5.0 1.6 1% 1%

World 12,703.3 879.8 n.a. n.a.

Foreign exchange reserves as of December 2020.

GDP caluclated as sum of rolling 4Q GDP through Q4-2020.

Table 1: Foreign Exchange Reserves

Short-term debt consists of gross external debt with original maturity of one year or 

less, as of the end of Q3-2020; Ireland as of Q2-2020.

Sources: National Authorities, World Bank, IMF, BIS
16

especially for medical supplies, personal protection equipment and electronics. Questions

remain about the continued strength of the Chinese recovery absent a sustained increase in

household consumption. While official data do not show significant accumulation of

foreign exchange assets by the central bank, China’s failure to publish foreign exchange

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

mechanism and the activities of state-owned banks warrant close monitoring of RMB

developments going forward.

An uptick in growth in the fourth quarter (6.5% year-over-year) contributed to an annual

increase in real GDP of 2.3% in 2020. However, China’s recovery has been highly

imbalanced. China’s economy was the first to be impacted significantly by the COVID-19

outbreak. Stringent containment measures enabled China to quickly resume

manufacturing while domestic consumption lagged. China’s fiscal response to the

pandemic has been limited compared to many G20 economies, with total discretionary

stimulus estimated by the IMF at 4.7% of GDP. The initial fiscal response focused on health

spending and fee reductions, followed by additional public infrastructure spending. China’s

monetary policy response to the pandemic has also been restrained, with greater emphasis

on facilitating indirect support through bank lending, particularly to small- and mediumsized enterprises, as well as regulatory forbearance on loan defaults. 

China’s focus on policies that

support external demand,

combined with temporary

COVID-19 impacts, increased

its current account surplus. 

After recording a current

account deficit of 1.4% of GDP

in the first quarter of 2020,

China subsequently recorded

much larger current account

surpluses over the remainder

of the year, arriving at an

overall surplus of 1.9% of GDP ($274 billion) compared to a surplus of 0.7% of GDP ($103

billion) in 2019. COVID-19 provided a short-term boost to China’s goods exports, which

increased by 4.6% in 2020 and led to a goods trade surplus of $515 billion, its largest since

2015. The early resumption of manufacturing, as well as the speedy enactment of export

tax rebate incentives, allowed China to meet increased external demand for medical

supplies and personal protection equipment, along with greater demand for electronics

related to the shift toward remote work. Meanwhile, goods imports decreased by 0.6%

from 2019, partly reflecting the reduction in commodity prices. China’s services deficit

sharply decreased by more than 44% in 2020, primarily as a result of the collapse in

outbound tourism due to global travel restrictions. Given these pressures, China appears

likely to run a large external surplus through the duration of the pandemic.

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

any U.S. trading partner. Since peaking at $419 billion in 2018, China’s bilateral goods

-5

0

5

10

2008200920102011201220132014201520162017201820192020

Percent of GDP

China: Current Account Balance

Income Services Goods Current Account Balance

Sources: SAFE, Haver
17

trade surplus with the United States has declined steadily, reaching $345 billion in 2019

and narrowing further in 2020 to $311 billion. China continues to run a deficit in its

bilateral services trade with the United States, which totaled $22 billion in 2020 compared

to $36 billion in 2019. 

Capital outflows remain below the peak levels witnessed in 2015 and 2016. Treasury

estimates that, in 2020, net capital outflows (excluding flows accounted for by trade and

direct investment) totaled $447 billion, compared to $272 billion in 2019. In 2020 China

recorded a net errors and omissions deficit of $168 billion, up from a deficit of $129 in

2019, suggesting an uptick in undocumented capital outflows that are not captured within

the conventional components of the financial account.8 Meanwhile, China’s other

investment deficit increased sizably from $99 billion in 2019 to $256 billion in 2020, which

may suggest an increase in capital outflows related to bank activity. Overall pressure on

the financial account has been curbed by strong foreign direct investment and portfolio

inflows, particularly portfolio debt inflows.

The RMB appreciated by 6.7%

against the dollar and 3.8%

against the People’s Bank of

China’s (PBOC) China Foreign

Exchange Trade System

nominal basket in 2020.

9 

Meanwhile, the real effective

exchange rate strengthened

by 3.4% in 2020. In the first

half of 2020, the RMB

remained relatively stable

compared to other emerging

market currencies, depreciating only 1.5% against the dollar despite significant market

volatility that led to increased capital outflows in the first quarter of 2020, followed by a

large current account surplus and portfolio inflows in the second quarter of 2020. In the

second half of 2020, the RMB strengthened 8.3% against the dollar, supported by favorable

interest rate differentials, increased investment inflows, and positive economic data,

including substantial trade surpluses. RMB appreciation against the dollar moderated at

the start of this year and then reversed in March. Overall, the RMB has depreciated against

the dollar by 0.4% through the end of March.

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

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

relationship between the central bank and foreign exchange activities of the state-owned

banks, and its activities in the offshore RMB market. The PBOC manages the RMB through

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

8 China’s reporting of its net errors and omissions data has historically lagged reporting of other balance of

payments data, raising additional questions regarding data quality and disguised capital outflows.

9 The China Foreign Exchange Trade System (CFETS) RMB index is a trade-weighted basket of 24 currencies

published by the PBOC.

85

90

95

100

105

110

Indexed December 2014 = 100

China: Exchange Rates

Bilateral vs. USD CFETS REER (monthly)

Sources: CFETS, FRB, BIS
18

the midpoint of the daily trading band. Chinese authorities can influence the interest rates

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

forward swap sales and purchases by China’s state-owned banks and the conversion of FX

proceeds by state-owned enterprises, and directly intervene in foreign exchange markets.

In recent months, the authorities made several adjustments to their macroprudential policy

tools governing corporate and financial institution overseas financing limits that, on net,

appear designed to encourage outbound RMB lending and disincentivize foreign currency

borrowing. This follows announcements by the PBOC in October 2020 of a reduction in the

risk reserve ratio on foreign exchange forwards to zero and the indefinite suspension of the

counter-cyclical factor in setting the daily fix. Treasury will closely monitor China’s use of

exchange rate management, capital flow, and macroprudential measures and their

potential impact on the exchange rate. 

Compared to other major

economies, especially in Asia,

China is increasingly an

outlier with respect to its

non-disclosure of foreign

exchange market

intervention, which forces

Treasury staff to estimate

China’s direct intervention in

the foreign exchange market. 

Overall, official foreign

exchange reserves increased by $109 billion in 2020, standing at $3.2 trillion. Meanwhile,

monthly changes in the PBOC’s foreign exchange assets recorded no significant changes,

decreasing by $15 billion in 2020. Indeed, the PBOC’s foreign exchange assets have not

recorded any quarterly changes greater than $5 billion in the past two years, despite China

recording substantial trade and portfolio inflows in 2020 that historically have resulted in

the accumulation of foreign exchange reserves. In contrast, net foreign exchange

settlement data, a more comprehensive proxy measure for intervention that includes the

activities of China’s state-owned banks, recorded foreign exchange purchases of nearly

$180 billion (1.2% of GDP) in 2020, including substantial purchases of nearly $87 billion

last December alone.10 Historically, monthly changes in the PBOC’s foreign exchange assets

and net FX settlements data have provided roughly similar estimates of the direction and

size of Chinese foreign exchange intervention. The divergence between these indicators

widened in the second half of 2020 to its largest level since 2015. The precise cause for this

divergence is unclear and could be related to commercial factors. The divergence could

also indicate that the PBOC’s foreign exchange assets data may not adequately capture the

full range of China’s intervention methods, including intervention through the state-owned

banks. Overall, this development highlights the need for China to improve transparency

regarding its foreign exchange intervention activities. 

10 This figure represents net foreign exchange purchases adjusted for the change in outstanding foreign

exchange forwards.

-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

Billion U.S. Dollars

China: Estimated FX Intervention

PBOC FX Assets Bank Net FX Settlement

Sources: PBOC, SAFE, U.S. Treasury Estimates
19

As the authorities attempt to balance policy normalization against supporting the economic

recovery, they will need to rely on on-budget fiscal measures and carefully navigate the exit

from monetary stimulus while managing short-term volatility. Lackluster private demand

– underpinned by continued weakness in the labor market – raises concerns that China’s

growth cannot be sustained absent greater official support for household consumption. To

regain lost momentum on economic rebalancing and strengthen long-term growth

prospects, China should take decisive steps to allow for greater market openness by

implementing structural reforms to reduce state intervention, enhancing social safety nets

and increasing spending on healthcare and unemployment benefits, and permitting a

greater role for market forces. 

Japan

In 2020, real GDP contracted 4.8%, the largest contraction since 2009. Over the first half of

2020, state of emergency measures encouraging citizens to stay home and public

reluctance to engage in various economic activities amid the pandemic drove an acute

slowdown in private consumption and investment. Output rebounded strongly by

annualized rates of 22.8% and 11.7% respectively in the third and fourth quarters of 2020. 

The IMF projects real GDP will expand by 3.3% in 2021, with economic output in Japan

expected to recover to end-2019 levels in the second half of the year.

Japan’s government responded to the crisis in 2020 with three large supplemental budgets. 

Direct spending accounted for roughly one-third of the total fiscal response and included

measures to ease hardships for households and businesses through the provision of cash

transfers to those affected by the downturn. The more substantial indirect measures

included tax payment deferrals and concessional loans to businesses, with specific support

for small-and-medium enterprises. While Japan’s initial 2021 budget shows a smaller

deficit (3.7% of GDP) than its final 2020 budget (16.9% of GDP), spending is still slated to

increase 3.8% over the initial 2020 budget, driven by $46 billion in contingency spending

for COVID-19 measures.

The Bank of Japan (BOJ) took measures to further ease monetary conditions, including

removing the ceiling on government bond purchases and increasing asset purchase limits

for exchange-traded funds, Japan real estate investment trusts, commercial paper, and

corporate bonds. The BOJ also implemented multiple financing initiatives to support bank

lending.
20

Japan’s current account

surplus narrowed to 3.3% of

GDP in 2020 from 3.6% in

2019. Japan’s current

account surplus continues to

be driven primarily by

income on its substantial net

foreign assets, with the

primary and secondary

income balance reaching

record levels in 2020 ($182.4

billion). The drag on global

trade from the COVID-19

shock weighed modestly on Japan’s trade balance. Net exports of goods and services fell

into deficit by 0.1% of GDP in 2020. The goods trade surplus with the United States in

2020 was $55 billion, down 20% from 2019 

With regard to capital flows, strong outflows from corporates, domestic financial

institutions, and households consistently outweighed inflows in 2020. Among these flows,

foreign direct investment by Japanese corporations remained elevated in 2020. Notably,

Japanese pension funds, including the Government Pension Investment Fund, were large

net purchasers of foreign assets, primarily in long-term debt, as these institutions

increased foreign asset allocations.

After appreciating close to 

1% against the dollar in 

2019, the yen appreciated an 

additional 5.3% against the 

dollar in 2020, as the 

deterioration in global risk 

sentiment sparked by the 

spread of COVID-19 drove 

flows into traditional safe 

haven currencies. On a real 

effective basis, the yen 

weakened 1.1% in 2020, 

after appreciating 1.5% in 

2019. The IMF assessed in its 2020 External Sector Report that the yen was broadly in line 

with fundamentals in 2019. Japan publishes its foreign exchange interventions and has not 

intervened in foreign exchange markets since 2011. Treasury’s firm expectation is that in 

large, freely traded exchange markets, intervention should be reserved only for very 

exceptional circumstances with appropriate prior consultations.

Looking ahead, Japanese policymakers should continue to prioritize containing COVID-19

and supporting the economic recovery, while preparing to address longer-term objectives. 

Once economic activity normalizes, Japanese authorities should pursue structural reforms

-3

0

3

6 2008

200920102011201220132014201520162017201820192020

Percent of GDP

Japan: Current Account Balance

Income Services Goods Current Account Balance

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

60

80

100

120

140

60

80

100

120

140

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

Indexed to 20Y Avg = 100

Japan: Exchange Rates

REER NEER Bilateral vs. USD

Sources: FRB, Bank for International Settlements
21

to increase productivity and raise potential growth while maintaining fiscal flexibility to

support growth in the near-term. 

Korea

Korea’s real GDP contracted by 1% in 2020. One of the first countries to experience an

outbreak of COVID-19 outside of China, Korea responded rapidly with public health

measures to contain three separate COVID-19 outbreaks over the course of the year. Fiscal

authorities complemented public health measures with four pandemic relief packages

worth 2.9% of GDP in 2020, including direct cash transfers for individuals and support for

small businesses, bringing Korea’s 2020 fiscal deficit to 4.2% of GDP. Authorities also

passed two fiscal packages for 2021, bringing the projected 2021 fiscal deficit to 4.5% of

GDP. Though historically large for Korea, these fiscal packages are small relative to other

advanced economies. With a low debt-to-GDP ratio of approximately 49%, Korea has

ample fiscal space to further support growth, especially given the weakness in private

demand. Similarly, monetary authorities also took several measures to ease monetary

conditions and support Korea’s economic recovery, and the Bank of Korea (BOK) has

signaled that monetary accommodation will continue until the economic recovery is stable. 

The IMF predicts the Korean economy will expand by 3.6% in 2021. 

Korea’s current account

surplus widened to 4.6% of

GDP in 2020, compared to

3.6% in 2019. The largest

driver of the increase was the

continued narrowing of the

services deficit, which fell to

1.0% of GDP from 1.6% of

GDP in 2019 due to the

impact of COVID on the

tourism and transportation

services. Korea’s goods

surplus increased to 5.0% of

GDP, from 4.8% of GDP a year earlier, led by demand for Korean semiconductor exports. 

The increase in the current account surplus in 2020 marks a reversal from a gradual

moderating trend that began in 2015, when the current account surplus peaked at 7.2% of

GDP. Korea’s bilateral goods trade surplus with the United States also expanded to $25

billion in 2020 from $21 billion in 2019. 

-4

-2

0

2

4

6

8

10

2008200920102011201220132014201520162017

201820192020

Percent of GDP

Korea: Current Account Balance

Income Services Goods Current Account Balance

Sources: Bank of Korea, Haver
22

Korea’s large current

account surplus, augmented

by solid capital inflows,

drove won appreciation of

6.4% against the dollar and

2.7% on a real effective basis

in 2020. The won initially

faced sharp depreciation

pressure, declining 6.6%

against the dollar from

January through May. Amid

dollar liquidity pressure, the

Federal Reserve announced

a temporary $60 billion swap line with the BOK, which drew up to $19 billion in dollar

auctions from March through May. Depreciation pressures reversed in June, and the won

steadily strengthened by 10.5% over the second half of 2020. Foreign investors, on net,

sold $16 billion in Korean equities through 2020, though equity sales were front-loaded

toward the beginning of the year when volatility was highest. Notably, net foreign

purchases of Korean debt totaled $33 billion and remained remarkably steady throughout

the year. 

Korea reported net foreign

exchange purchases of $5

billion (0.3% of GDP) in the

spot market to stem won

appreciation in 2020. 

Treasury estimates that

Korean authorities made

sizeable foreign exchange

purchases in the last four

months of the year totaling

$20 billion (1.3% of GDP), as

the won appreciated 9.3%

against the dollar over the same period. Korea has well-developed institutions and

markets and should limit currency intervention to only exceptional circumstances of

disorderly market conditions. Korea maintains ample foreign exchange reserves at $430

billion as of December 2020, equal to 2.7 times gross short-term external debt. Korea

publicly reports its foreign exchange intervention on a quarterly basis.11

11 Treasury’s estimates are more frequent and are based on valuation-adjusted changes in foreign exchange

reserves as well as changes in the central bank’s forward position. In 2020, Treasury estimated $22.7 billion

in spot purchases by Korea while $1.6 billion in forward contracts expired, for a net of $21.1 billion in

estimated foreign exchange purchases. Increases in Korean domestic banks’ foreign exchange deposits with

the BOK and realized capital gains from the BOK’s sales of foreign currency securities amid volatile market

conditions in the first half of the year appeared to drive the unusually large gap between Treasury’s estimate

and the Korean authorities’ reported intervention figure.

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-21

Indexed to 20Y Avg = 100

Korea: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements

-10

-5

0

5

10

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

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
23

As Korea manages its return to normal economic activity, the authorities should continue

to deploy economic support measures to avoid prematurely withdrawing support. 

Monetary policy should remain sufficiently accommodative, with consideration for the

potential risks of long-term undershooting of the BOK’s inflation target. Progress on

structural reforms, including addressing labor market duality and further expanding social

safety net programs, would help secure economic opportunity for young workers and

reduce old-age poverty while increasing potential growth over the medium term.

The Euro Area

The COVID-19 pandemic has triggered the biggest economic slump in Europe since World

War II. Euro area real GDP fell by 15% in the first half of 2020, and after a brisk 12.5%

rebound in the third quarter, economic activity contracted by 0.7% in the final three

months of the year as member states intensified measures to contain resurging infection

rates. The European Union’s (EU’s) official statistical agency estimates that euro area

output fell by 6.6% in 2020. Labor market activity deteriorated significantly, with declines

in total hours worked mirroring developments in real GDP, although widespread use of job

retention schemes across the region have thus far prevented a corresponding surge in

unemployment. Consumer and business sentiment have recovered partially since

bottoming out in April 2020, when containment measures were in full force, and have

weathered recent restrictive measures comparatively well, particularly in the

manufacturing sector. Nonetheless, analysts expect real GDP to contract in the first quarter

of 2021, with growth projected to resume from the second quarter.

Policymakers have launched an unprecedented monetary and fiscal response to ease the

retrenchment in private demand and alleviate potential supply disruptions, with the goal of

maintaining the foundations for a restoration in economic activity as restrictions ease. 

Fiscal support at the national level in 2020 amounted to around 8% of euro area GDP

(including automatic stabilizers), along with liquidity schemes of about 19% of euro area

GDP, according to European Commission estimates. At the EU level, the roughly $860

billion (€750 billion) Next Generation EU pandemic recovery package agreed last July is

intended to help repair the economic damage of the COVID-19 crisis, foster a more

symmetric recovery by supporting the hardest-hit economies, and promote the EU’s goal of

a “fairer, greener, and more digital Europe.” Disbursements of these recovery funds are

expected to start in mid-summer. 

The European Central Bank's (ECB) Governing Council acted decisively when the 

pandemic struck last year, launching and then expanding the Pandemic Emergency 

Purchase Program (PEPP) to €1.85 trillion (equal to about $2.2 trillion as of endMarch), with the horizon for net purchases now slated to run at least through March 

2022; expanding the existing asset purchase program with an additional €120 billion 

temporary envelope until the end of in 2020, together with continued purchases at a 

pace of €20 billion per month that began in November 2019; slashing interest rates on 

Targeted Longer-Term Refinancing Operations (TLTROs) to as low as -1.0%; and 

launching the Pandemic Emergency Longer-Term Refinancing Operations. The ECB 
24

continues to struggle to raise inflation to its mandate of “close to, but below, 2.0% over 

the medium term”. 

The euro area current account surplus held steady at 2.3% of GDP in 2020, unchanged from

2019, as an increase in the goods surplus offset weakening external demand for euro area

services.

As global financial market

volatility rose in spring 2020

amid the widening COVID-19

pandemic, spot rate swings

and option-implied volatility

between the euro-dollar

currency pair reached multiyear highs in March 2020. 

On March 15, the Federal

Reserve, the ECB, and four

other major central banks

announced adjustments to

their standing U.S. dollar

liquidity swap line arrangements to enhance the availability and effectiveness of U.S. dollar

liquidity operations. Subsequently, European banks through the ECB drew up to $145

billion through the swap line arrangement.12 In combination with other actions by the

Federal Reserve, this helped alleviate global dollar liquidity pressures, and by the end of

April, market pricing and volatility had receded closer to normal historical levels. On net in

2020 the euro appreciated 8.9% against the dollar, having gradually strengthened since

April 2020. The euro has strengthened somewhat less on a trade-weighted basis, rising

7.0% and 5.1% on a nominal and real effective basis, respectively, over 2020. The IMF’s

most recent assessment judged the euro area’s external position to be moderately stronger

than the level implied by medium-term economic fundamentals and desirable policies. 

The ECB publishes its foreign exchange intervention and has not intervened unilaterally in

foreign exchange markets since 2001.

Germany

In 2020, the global pandemic ended ten years of economic growth in Germany. After

withstanding the initial wave of infections, Germany has been on continuous lockdowns

since November with restricted travel and business activity to contain the spread of new

variants amid a slow vaccine rollout. Germany’s economy contracted 4.9% in 2020, slightly

outperforming the IMF’s October 2020 WEO forecast of a 5.4% contraction. In 2020, the

fiscal deficit stood at 4.2% of GDP, while gross debt rose to 68.9% of GDP as Germany

adopted large fiscal stimulus measures in response to the crisis and activated the escape

clause on its constitutional debt brake to take on unprecedented deficit spending. As

12 As of end-March 2021, outstanding amounts under the swap line with the ECB stood at $0.5 billion.

80

90

100

110

120

130

80

90

100

110

120

130

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

Indexed to 20Y Avg = 100

Euro: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
25

recovery takes hold, the IMF forecasts German real GDP to grow 3.6% in 2021. The IMF

expects Germany’s general government deficit to widen modestly in 2021 to 5.5% of GDP,

while gross debt is expected to stay elevated at 70.3%. 

Germany has approved $316 billion (8.3% of GDP) in direct assistance for shuttered

businesses, targeted sectors, and short-time work benefits. In addition, Germany has

approved $1.2 trillion (30.8% of GDP) in loans, equity, and guarantees to firms, even

though take-up remains low due to lower financing needs and higher use of direct

assistance, as well as the higher cost of certain guarantee schemes. The early and large

fiscal measures supported domestic demand in the third quarter of 2020, but lockdowns

have since suppressed domestic activity. However, industrial production contributed to a

0.4% quarterly expansion in real GDP in the fourth quarter of 2020, exceeding

expectations. While domestic demand remains subdued, German growth was driven

mainly by changes in inventories and exports in the fourth quarter of 2020. 

Germany’s current account

surplus remains the largest in

the world in nominal terms

(at $284.3 billion in 2020). 

The current account surplus

narrowed somewhat in 2020

as the shock to global trade

weighed on goods exports. 

The current account surplus

stood at 6.9% of GDP in 2020

(down from 7.7% of GDP in

2019). Nonetheless, while

German domestic demand contributed substantially to growth from 2015-2019, helping

gradually narrow the current account surplus, it was not sufficient to reduce external

imbalances appreciably. With low domestic demand in 2020, exports, investment outflows,

and limited tourism outflows added to the current account surplus. Germany’s bilateral

goods trade surplus with the United States stood at $57.3 billion in 2020, down from $67.4

billion in 2019. The IMF’s most recent assessment judged Germany’s external position to

be stronger than warranted by medium-term economic fundamentals and desirable

policies.

In recent years, Germany’s tight fiscal policies have restrained domestic consumption and

investment. The measures announced in response to COVID-19, including the VAT cut and

the suspension of the national fiscal rules to allow for new debt issuance, are steps in the

right direction but are temporary in nature.13 Such temporary measures fail to address

Germany’s overly conservative budget process (both with respect to the debt brake rule

and persistent stronger-than-projected revenues), which prevents sufficient public

investment in infrastructure to improve Germany’s investment climate. Since 2014,

Germany’s approved budgets have called for fiscal balance, but stronger-than-forecast

13 Germany’s VAT rate, reduced temporarily in 2020, has reverted to 19% this year. 

-5

0

5

10

200820092010

2011201220132014201520162017201820192020

Percent of GDP

Germany: Current Account Balance

Income Services Goods Current Account Balance

Source: Deutsche Bundesbank
26

revenues and under-execution of spending plans have meant that fiscal surpluses have

averaged 1.2% of GDP over this time period, while reaching historic records of 1.9% of GDP

in 2018 before declining modestly to 1.4% of GDP in 2019. With the sensible temporary

suspension of the debt brake rule and “black zero” balanced budget rule to support

economic recovery, Germany has an opportunity to reform its fiscal rule and rebalance its

economy in favor of domestic demand. As recovery takes hold, Germany should deploy its

substantial fiscal space through structural measures to bolster current activity, reduce the

burden of taxation — particularly through tax cuts that would lower the labor tax wedge —

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

reasonable pace. 

Ireland

Despite pandemic challenges, the Irish economy expanded in 2020, with real GDP growth

of 3.4%, compared to a 6.6% contraction for the euro area as a whole. The role of

multinational corporations, particularly those in the pharmaceutical and medical sectors,

have largely fueled this growth. The European Commission forecasts real GDP growth of

3.4% in 2021 on the back of exports, a domestic consumption rebound, and a recovery in

investment. 

In 2020 and thus far in 2021, the government has committed a total of 6.9% of GDP for

COVID-19 related fiscal stimulus, the bulk of which is direct support for businesses,

employment, income, and healthcare. The 2021 budget allocates an additional 1.7% of GDP

to extend income support measures, provide targeted support to the hospitality sector, and

increase health and housing spending. As a result of COVID-19 spending, the government’s

fiscal position deteriorated from a 0.4% of GDP surplus in 2019 to a 5.3% of GDP deficit in

2020. Ireland’s debt levels, though rising from 57.3% of GDP in 2019 to 59.8% of GDP in

2020, remain manageable.

Despite Ireland’s relative economic resilience, like its EU peers Ireland faces the risk of

rising unemployment. The unemployment rate rose from 4.8% in February 2020 to 5.8%

in February 2021, but the increase would have been much larger in the absence of job

retention measures. As these measures — due to expire mid-year — fall away, the

economy may face substantially higher unemployment. Ireland also faces a housing gap,

with supply shortages pushing up prices; as such, Treasury welcomes the Irish

government’s ongoing efforts to boost affordable housing. 
27

Ireland’s current account has

become increasingly volatile. 

The significant presence of

large foreign multinational

enterprises (MNE)

headquartered in Ireland

contributes to current

account volatility and

balance of payments

measurement challenges. 

Ireland ran a sizeable current

account surplus in 2018,

followed by a swing to deficit

in 2019. In 2020, the current account shifted back to surplus. The current account surplus

stood at 4.8% of GDP in 2020, driven by strong goods exports — mainly of pharmaceuticals

and medical equipment, which comprised 39% of goods exports in 2020 — against sharply

weaker services imports, including a large decline in Ireland’s aircraft leasing sector

activity. 

Since 2017, Ireland’s Central Statistics Office has produced complementary metrics for

economic activity and the balance of payments which exclude the profits of re-domiciled

companies, the depreciation of intellectual property products, and aircraft leasing. 

According to this measurement — the Modified Gross National Income or GNI* — the Irish

economy contracted by 5.1% in 2020, in contrast to 3.4% growth as measured by real GDP. 

Ireland’s modified current account balance metric (CA*) also filters out the volatile

activities of MNEs that have limited impact on the domestic economy. In its most recent

assessment from June 2019, the IMF concluded that Ireland’s external position was broadly

consistent with medium-term fundamentals and desirable policy settings during 2018, but

noted that the assessment is subject to considerable uncertainty given the volatility of the

data and the role of MNEs.

The U.S. remains Ireland’s largest single-country export destination, accounting for 31% of

Irish exports in 2020. By contrast, imports from the U.S. represent 13% of total Irish

imports. In 2020, Ireland posted a $56 billion goods trade surplus with the U.S, continuing

a 24-year goods surplus streak. The United States’ services trade surplus with Ireland

stood at $43 billion in 2020. Two-way investment between the United States and Ireland

also continues to grow. Ireland’s membership in the EU attracts U.S. companies that use

Ireland as a base to sell into Europe and other markets.

Ireland’s foreign MNE sector has driven the economy’s relatively strong performance

through the pandemic, highlighting the increasing divergence between the country’s

outward-facing and domestic sectors. Treasury encourages the authorities to use the EU’s

Recovery and Resilience Facility funds effectively on productive investment in the domestic

economy and structural reforms to support balanced and sustainable growth throughout

the economy. Continued fiscal support will be important, particularly for the struggling

tourism and hospitality sectors, until the economic recovery is well underway. Diversifying

-60

-40

-20

0

20

40

60

2008200920102011201220132014201520162017201820192020

Percent of GDP

Ireland: Current Account Balance

Income Services Goods Current Account Balance

Source: Central Statistics Office Ireland
28

revenue sources, including though broadening the tax base, could help improve fiscal

sustainability.

Italy

Italy was first among European countries hit by COVID-19 (with the outbreak first

confirmed in February 2020), and remains among the countries hardest hit. In the second

quarter of 2020, real GDP contracted by a record 42.7% annualized rate (18% year-overyear) as the government-imposed lockdowns and other restrictive measures to stem the

pandemic. While Italy saw a stronger-than-expected rebound in the third quarter, the

resurgence of COVID-19 in the fall weighed on growth in the fourth quarter Italian real

GDP contracted 8.9% in 2020, and is not expected to return to pre-pandemic levels until

2023. To tackle the COVID-19 crisis in 2020, Italy passed four fiscal packages totaling

around 6.8% of GDP in direct fiscal stimulus and around 35% of GDP in loan guarantees. In

early 2021, Italy passed another fiscal package amounting to 1.8% of GDP. As a result, the

fiscal deficit reached 9.5% of GDP in 2020 and is projected to remain elevated at around

9% of GDP in 2021, increasing Italian government debt — already the second-highest in

the euro area — to nearly 156% in 2020 and a projected 159% in 2021. 

Italy’s current account

surplus has been broadly

stable in recent years and

stood at 3.6% of GDP in 2020

(above its 2019 level of

3.0%). The United States is

Italy’s third-highest export

destination, and Italy’s goods

trade surplus with the United

States stood at $30 billion in

2020. The IMF’s most recent

assessment describes Italy’s

external position in 2019 as

largely in line with medium-term economic fundamentals and policies. 

Italy’s persistently anemic growth and pre-pandemic fundamentals highlight the difficult

road to economic recovery. These longstanding trends have been further exacerbated by

the COVID-19 crisis, and continuous lockdowns of various stringencies in response to

second and third COVID-19 waves in fall 2020 and early 2021. In light of the unfolding

circumstances, Italy should continue to provide fiscal support to impacted households and

firms and consider further extending its worker furlough program to help prevent

widespread unemployment. EU-level fiscal support — including the European instrument

for temporary Support to mitigate Unemployment Risks in an Emergency (SURE) and Next

Generation EU funding — should also help Italy weather the crisis, with Italy receiving a

total of around $240 billion in grants and loans. The crisis has only further demonstrated

the need, once the economic recovery takes hold, for Italy to undertake fundamental

reforms to tackle deep-rooted structural rigidities and boost competitiveness. In that vein,

-4

-2

0

2

4

6 2008

2009201020112012

20132014201520162017201820192020

Percent of GDP

Italy: Current Account Balance

Income Services Goods Current Account Balance

Sources: Ufficio Italiano dei Cambi, Banca d'Italia
29

Treasury welcomes the new government’s intention to reform Italy’s public administration,

judicial system, and tax system to help raise long-term growth in Italy.

India

India experienced one of the world’s largest number of COVID-19 cases along with a steep

growth contraction in 2020. India’s GDP shrank 7% in 2020 owing to the impact of the

pandemic, particularly on domestic demand and manufacturing activity. The nation’s strict

lockdown began on March 25, 2020 and continued until May 31, 2020. Economic activity

rebounded in the fourth quarter of the year as new COVID-19 cases declined from their

mid-September peak and as the government eased containment measures.

The Indian government expects the overall fiscal deficit to reach 9% of GDP in fiscal year

2021,14 substantially higher than past deficits, which have hovered below 4% of GDP since

2015. India introduced fiscal stimulus of roughly 2% of GDP in 2020. The stimulus

targeted low-income households, particularly in rural areas, and the government used

indirect fiscal measures to help ease the flow of credit to small businesses. The central

bank also pursued measures to boost demand last year. The Reserve Bank of India (RBI)

reduced its policy rate 115 basis points to 4.0% in August 2020. Measures intended to

provide liquidity support totaled roughly 6% of GDP and a temporary loan repayment

moratorium supported businesses and non-bank financial companies.

India’s current account

registered a surplus of 1.3%

of GDP 2020, a marked

departure from the consistent

current account deficits

recorded since 2004, as

imports fell faster than

exports reflecting India’s

weak domestic demand

during the COVID-19

lockdown and historically low

oil prices. Relatively resilient

remittance inflows and steady services exports also contributed to the current account

surplus in 2020.

India’s goods trade surplus with the United States was $24 billion in 2020, broadly in line

with its average level since 2014. India also ran an $8 billion services trade surplus with

the United States in 2020. 

India has been exemplary in publishing its foreign exchange market intervention,

publishing monthly spot purchases and sales and net forward activity with a two-month

14 End-March.

-15

-10

-5

0

5

10

2008200920102011201220132014201520162017201820192020

Percent of GDP

India: Current Account Balance

Income Services Goods Current Account Balance

Source: Reserve Bank of India
30

lag. The RBI states that the value of the rupee is broadly market-determined, with

intervention used only to curb undue volatility in the exchange rate. 

While the RBI frequently

intervenes in both directions,

the RBI purchased foreign

exchange on net in 11 of the

12 months of 2020, with net

intervention reaching $131

billion, or 5.0% of GDP. 

Purchases slowed following

the onset of the pandemic,

when India experienced large

capital outflows, and, in

response, the RBI engaged in

net sales in March 2020 as the rupee weakened. As portfolio inflows resumed and foreign

direct investment remained strong during the second half of 2020, the RBI’s net purchases

accelerated. 

RBI purchases have led to a rapid rise in total reserves. As of December 2020, foreign

exchange reserves totaled $542 billion, equivalent to 21% of GDP and 219% of short-term

external debt at remaining maturity.15 In the 2020 External Sector Report, the IMF judged

that India’s reserves were already adequate for precautionary purposes as of December

2019, as reserves at the time stood at 163% of the IMF’s reserve adequacy metric. Given

the rapid growth in reserves in 2020, it is likely that they remain above the top end of the

IMF’s threshold for reserve adequacy (150% of the IMF’s metric).

Like most emerging market

currencies, the rupee was

buffeted in 2020 by

substantial swings in global

risk appetite and associated

shifts in capital flows. After

depreciating 6.0% against

the dollar during the first

half of 2020, the rupee

partially recovered and

ended the year 1.7% lower

against the dollar. On a

nominal and real effective

basis, the rupee weakened 6.9% and 3.2%, respectively, over the four quarters through

December 2020. In its 2020 External Sector Report, the IMF estimated that India’s external

position in 2019 was broadly in line with economic fundamentals and desirable policies.

15 Foreign exchange reserves were equivalent to 527% of short-term external debt at original maturity. Both

the remaining maturity and original maturity figures rely on short-term external debt data as of September

2020.

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-21

Indexed to 20Y Avg = 100

India: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements

-15

-10

-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

Billion U.S. Dollars

India: FX Intervention

Net Spot Market Purchases Change in Net Fwds/Futures Net FXI

Source: Reserve Bank of India
31

The authorities should allow the exchange rate to move to reflect economic fundamentals,

limit foreign exchange intervention to circumstances of disorderly market conditions, and

refrain from excessive reserve accumulation. As the economic recovery takes hold, the

authorities should continue to pursue structural reforms that can help lift productivity and

living standards, including greater openness to foreign financial flows and financial sector

deepening, which can further support economic growth.

Malaysia

The Malaysian economy contracted 5.6% in 2020, seeing its worst recession since the

Asian Financial Crisis. After a particularly sharp contraction in the second quarter,

economic activity began to rebound in the second half of the year, supported by the

resumption of non-essential business operations, a rebound in exports, and COVID-19

relief measures. While the economy is expected to continue its recovery in 2021, downside

risks remain as the country continues to register elevated COVID-19 case numbers,

prompting the authorities to reintroduce strict social distancing measures in January 2021. 

However, new cases counts have moderated since early February and Malaysia began its

vaccination drive in February.

In addition to the substantial policy support provided last year to buffer the shock from the

pandemic, the authorities announced approximately $4 billion (1% of GDP) in COVID-19

programs as part of the 2021 budget. Key measures include cash transfers, wage subsidies

and trainings, and support for the healthcare sector.

Malaysia has made

substantial progress

rebalancing its external

sector over the past decade

as savings rates declined

gradually due to stronger

consumption amid a

strengthened labor market,

rising household borrowing,

and increased government

transfers. However,

imbalances have widened

modestly over the last two

years, with the current account surplus reaching 4.4% of GDP in 2020, its highest level

since 2012. This partially reflected COVID-19 related shocks, including a substantial

contraction in domestic demand, the decline of outward remittances, and a rebound in

exports by the third quarter of 2020.

Malaysia’s bilateral goods trade surplus with the United States reached $32 billion in 2020. 

Malaysia and the United States have strong supply chain linkages, and bilateral trade is

driven by supply integration in key industries such as electrical machinery parts, nuclear

-10

-5

0

5

10

15

20

25

2008200920102011201220132014201520162017201820192020

Percent of GDP

Malaysia: Current Account Balance

Income Services Goods Current Account Balance

Source: Department of Statistics Malaysia
32

reactor and boiler parts, and optical and medical instruments. Malaysia engages in

relatively limited bilateral services trade with the United States — about $4 billion in 2020

— and has long run a modest services trade deficit with the United States, led by U.S.

exports of tourism, financial services, and intellectual property. Malaysia’s services trade

deficit with the U.S. has narrowed in the past three years, down to $0.6 billion in 2020 from

a peak of $1.7 billion in 2017.

Malaysia does not publish

foreign exchange

intervention data, forcing

Treasury staff to estimate

the scale of Malaysia’s

intervention. Treasury

estimates Bank Negara

Malaysia’s (BNM) net

purchases of foreign

exchange in 2020 amounted

to $2 billion, or 0.6% of GDP. 

BNM sold foreign exchange

on net in the first quarter of 2020 amid the significant global financial volatility sparked by

the pandemic. BNM purchased foreign exchange on net over the subsequent three

quarters, with most activity displaying through a rise in BNM’s net forward position. 

Foreign exchange reserves stood at around $100 billion at end-2020, up 2.6% over the

year, and are broadly adequate according to standard adequacy metrics, including that of

the IMF.

Like most other emerging

market currencies, the

ringgit came under

considerable pressure at the

outset of the COVID-19 shock

but recovered over the rest

of 2020 as investor

sentiment improved. On net,

the ringgit appreciated 1.8%

against the U.S. dollar in

2020, while depreciating

1.9% and 3.7% on a nominal

and real effective basis,

respectively. The IMF has assessed the ringgit to be undervalued for over a decade, and its

most recent assessment found the ringgit to be 8% undervalued in 2020.

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. Treasury urges the

authorities to increase the transparency of foreign exchange intervention, in line with

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-21

Indexed to 20Y Avg = 100

Malaysia: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements

-8

-6

-4

-2

0

2

4

6 Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

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
33

many peers that have moved to public reporting on intervention in recent years. External

rebalancing would be supported by upgrades to the social protection system and by

measures to foster quality investments.

Singapore

The Singapore economy contracted sharply in 2020, with real output falling 5.4%, its

largest contraction on record. Economic activity was weighed down by both demand- and

supply-side shocks stemming from strict social distancing measures, a fall in domestic and

external demand, and supply chain disruptions. These factors, coupled with low oil prices

and a weak labor market, pushed headline and core inflation into negative territory for

most of 2020. Singapore began its vaccination drive in December 2020 and is aiming to

vaccinate all residents by the end of 2021. 

In response to the COVID-19 outbreak, Singapore provided over $70 billion in fiscal

support in 2020, equivalent to approximately 20% of GDP. Fiscal measures aimed to

alleviate the economic damage to households, low- and middle-income workers, and

businesses, with a particular focus on maintaining employment, and other programs to

support economic resilience. In the fiscal year 2021 budget, the authorities announced a

new COVID-19 package worth $8 billion (2% of GDP) to fund public health and safe

reopening measures, along with support for workers and businesses.

While fiscal policy has been the authorities’ primary tool to respond to the economic effects

of the pandemic, the Monetary Authority of Singapore (MAS) has maintained a loose

monetary policy stance since March 2020, when MAS eased monetary policy by adopting a

0% annual rate of appreciation of its exchange rate policy band and reducing the midpoint

of the band to the prevailing nominal effective exchange rate.

Singapore’s outsized current

account surplus averaged

17% of GDP over the last

decade and ticked up to

17.6% of GDP in 2020. The

goods trade surplus has been

above 25% of GDP since

2010 and rose to nearly 28%

of GDP in 2020 as exports

recovered more quickly than

imports over the second half

of 2020. Moreover, as

outbound travel collapsed,

the services trade surplus increased to 4.4% of GDP, its highest level in over two decades. 

Singapore’s bilateral goods trade balance with the United States turned to a surplus in

2020 for the first time in two decades, swinging from a $5 billion deficit in 2019 to a $4

billion surplus. Singapore’s exports to the United States ticked up in 2020, driven by a

-20

-10

0

10

20

30

40

2008200920102011201220132014201520162017

201820192020

Percent of GDP

Singapore: Current Account Balance

Income Services Goods Current Account Balance

Sources: Monetary Authority of Singapore, Department of Statistics
34

large rise in gold and jewelry exports. Meanwhile, Singapore’s imports of U.S. aircraft, its

largest category of imports from the United States, declined significantly. Singapore has

long run a bilateral services deficit with the United States, which registered $11.9 billion in

2020. Key U.S. services exports to Singapore include research and development,

intellectual property, and professional and management services.

MAS uses the nominal

effective exchange rate of

the Singapore dollar (the

S$NEER) as its primary tool

for monetary policy and

executes its policy by

purchasing and selling

foreign currency in the

foreign exchange market. In

October 2020 and April

2021, MAS published data

on intervention covering the

first and second half of 2020 respectively, indicating total net purchases of $96.5 billion in

foreign currency in 2020, equivalent to 28.3% of GDP. While MAS’s intervention has been

heavily weighted toward purchases since 2017—with Treasury estimating that annual net

purchases of foreign exchange averaged 8% of GDP from 2017-2019—net purchases in

2020 were higher than Treasury’s estimates for any other year in the last two decades.

Official foreign exchange reserves held by MAS grew to $362 billion (107% of GDP) at end2020, the highest level on record. In addition to the reserves held by MAS, Singapore’s

government also has access to official foreign assets managed by the sovereign wealth and

investment funds GIC and Temasek. The IMF estimated that, as of 2019, external assets

held by GIC and Temasek amounted to at least 70% of GDP.

Amid the COVID-19 shock,

the Singapore dollar, like

most emerging market

currencies, came under

pressure in the first quarter

of 2020, but generally

recovered over the

remainder of the year. On

net, the Singapore dollar

appreciated 1.8% against the

U.S. dollar over 2020, while

weakening 2.4% and 2.8%

on a nominal and real

effective basis, respectively.

80

90

100

110

120

130

80

90

100

110

120

130

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

Indexed to 20Y Avg = 100

Singapore: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements

-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

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
35

The IMF in recent years has consistently assessed Singapore’s external position to be

substantially stronger than warranted by economic fundamentals and desirable policies,

while acknowledging that Singapore’s position as a global trading and financial center

present challenges for assessing the external position and the degree to which real

exchange rates may affect external adjustment. For 2019, the IMF assessed the real

effective exchange rate to be undervalued by 8% with a range of 2 to 14%. The IMF cited

several factors that boost saving, including a track record of fiscal surpluses and high

mandatory contribution rates for pensions, as key drivers of the strong external position.

In Singapore’s monetary policy regime, the primary policy role for the exchange rate has

been to achieve domestic (internal) balance, but at the same time external imbalances have

remained large and persistent. Given the massive size of net external official assets, the

government has substantial space to loosen fiscal policy on a structural basis. A sustained

expansion in the provision of social services in areas like healthcare, unemployment

insurance, and retirement would help reduce incentives for private saving and support

stronger consumption. Reductions in the high rates for mandatory contribution to the

government pension scheme and appropriately structured tax policies that support

consumption would have similar benefits in strengthening domestically driven growth. 

Consistent with the government’s stated goals, substantial new infrastructure investment

could help build resilience to threats from climate change while also supporting greater

domestic demand. 

Thailand

The COVID-19 pandemic has severely impacted the Thai economy. Output contracted by

6.1% in 2020, led by the collapse of the travel and tourism sector. Local transmission of

the virus was extremely low until mid-December 2020, when an acceleration in community

spread prompted tighter domestic activity restrictions. The authorities continue to

implement a package of relief measures combining fiscal stimulus, liquidity support, and

loan guarantees totaling 19% of GDP. Vaccine distribution began in late February 2021,

though the government does not anticipate being able to inoculate all eligible residents this

year. While domestic output should continue to recover this year, buoyed by the global

recovery and the domestic vaccine rollout, a marked increase in domestic COVID-19 cases

or a slower than expected recovery in tourism represent significant downside risks.
36

In 2020, Thailand’s current

account surplus narrowed to

3.3% of GDP from 7.0% of

GDP in the previous year. 

The moderation of the

current account surplus is

primarily the result of the

pandemic-related collapse in

tourism receipts, which

caused the services balance

to swing from a 4.4% of GDP

surplus in 2019 to a 3.0% of

GDP deficit in 2020. Significant import compression, along with a surge in gold exports and

prices, resulted in Thailand maintaining a sizeable goods trade surplus of 8% of GDP in

2020 (the widest annual surplus since 2016) despite a rapid drop in external demand. 

Exports contracted by 7% year-over-year, but imports fell by 13% as domestic demand

collapsed and oil prices fell sharply. 

Thailand’s bilateral goods trade surplus with the United States reached $26 billion in 2020,

up from $20 billion in 2019. Thailand’s exports to the United States increased by 12% last

year, driven by the strong growth of electronic and electric equipment exports. Thailand’s

imports from the United States fell 16% last year. This drop was largely attributable to

lower Thai imports of oil but falling imports of U.S.-made capital goods also contributed to

the decline. 

Thailand intervenes

frequently in foreign

exchange markets in both

directions, but intervention

activity has skewed heavily

toward purchases of foreign

currency since 2016. 

Thailand does not publish

data on its foreign exchange

intervention. The Thai

authorities have credibly

conveyed to Treasury that

net purchases of foreign exchange were 1.9% of GDP last year. This figure is equivalent to

about $9.6 billion. The authorities intervened in both directions in 2020, including periods

where they sold foreign exchange amid the market volatility sparked by the pandemic in

the first half of the year. Nevertheless, net purchases of foreign exchange were firmly

positive on an annual basis, picking up in the second half of the year. Net purchases were

particularly elevated in November and December, when the baht was appreciating rapidly

against the dollar and Thai authorities expressed concern publicly about the effect of baht

appreciation on the Thai economy.

-10

-5

0

5

10

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Billion U.S. Dollars

Thailand: Estimated FX Intervention

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

Sources: Bank of Thailand, U.S. Treasury estimates

-10

-5

0

5

10

15

2008200920102011

201220132014201520162017201820192020

Percent of GDP

Thailand: Current Account Balance

Income Services Goods Current Account Balance

Sources: Bank of Thailand, National Economic & Social Development Board
37

Like most emerging market

currencies, the baht

depreciated rapidly in the

first quarter of 2020 but

subsequently retraced most

of this decline, ending the

year 0.9% weaker against the

dollar and 4.5% weaker on a

real effective basis. Thailand

has taken several steps in

recent years to limit shortterm capital inflows and

encourage capital outflows. 

Many recent changes have fallen into the latter category and have resulted in a welcome

easing of limits on capital outflows. However, some recent changes have effectively

tightened inflow restrictions, making it more difficult for nonresidents to hold baht and

baht-denominated assets. 

In 2020, gross foreign exchange reserves grew by $31 billion to reach $246 billion, equal to

49% of GDP and 329% of short-term external debt.16 Reserves remain more than

adequate, with net foreign exchange reserves at the end of 2019 standing at 221% of the

IMF’s adequacy metric.

The IMF has consistently assessed since 2015 that Thailand’s external position is stronger

than warranted by economic fundamentals and desirable policies. The IMF’s most recent

assessment estimated the baht was undervalued by 9.5% in 2019 on a real effective basis. 

Persistent, one-sided foreign exchange purchases, along with restrictions on capital

inflows, have limited appreciation and contributed to sustained external imbalances. 

External imbalances have also reflected a relatively tight fiscal stance and an underdeveloped social safety net, which weigh on domestic demand and contribute to elevated

precautionary saving. Chronically low fixed investment has also contributed to external

surpluses.

Thai authorities should allow the exchange rate to move flexibly in line with economic

fundamentals, avoid sustained, one-sided intervention, and cease excessive reserve

accumulation. Moreover, the authorities should refrain from the use of capital flow

measures to manage exchange rate pressures or to target exchange rate levels. Thailand

should also pursue fiscal and structural policies that would reduce Thailand’s external

imbalances by encouraging private investment, reducing precautionary savings, and

promoting greater openness in domestically oriented sectors, which also would help to

support domestic growth.

16 Based on Bank of Thailand data for short-term external debt as of end-2020.

90

100

110

120

130

90

100

110

120

130

Jan-07Jan-08Jan-09Jan-10

Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21

Indexed to 20Y Avg = 100

Thailand: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
38

Mexico

Mexico fell into recession well in advance of the COVID-19 pandemic, with the economy

contracting 0.1% in 2019. As the pandemic took hold, Mexico’s economic downturn

accelerated and GDP fell by 16.8% quarter-over-quarter in the second quarter of 2020,

contracting by 8.2% over the full year. Mexico’s tepid recovery since the second quarter

has relied on external rather than domestic demand, as austere fiscal policy continues to

weigh on domestic activity. The IMF estimates that Mexico’s fiscal support package totaled

less than 1% of GDP, the lowest amount of fiscal support among the G20 and regional

peers. This austerity came despite modest public debt (63% of GDP) that is the median

among emerging market G20 members. Meanwhile, Mexico’s monetary policy response

has been constrained by sticky core inflation that has remained at the upper end of

Banxico’s inflation target band of 3±1% 

Mexico’s current account

swung into historic surplus in

2020. Relatively strong

external demand from the

United States cushioned

exports while fiscal austerity

in Mexico left the economy

more exposed to the

economic effects of the

pandemic, leading to

collapsing domestic demand

resulting in import

compression. Prior to 2020, Mexico had not had a current account surplus since 1987; at

2.4% of GDP, Mexico’s surplus was more than 4 percentage points above the 2015-2019

average. Mexico’s goods trade surplus was 3.2% of GDP, up from 0.4% in 2019. Notably,

the country’s bilateral goods trade surplus with the United States in 2020 was $113 billion

(the second highest after China, at $311 billion), up 11% from 2019. A record inflow of

remittances in 2020, increasing 11% to exceed $40 billion, also contributed 3.7% of GDP to

the current account surplus. Once pandemic conditions ease, economic normalization is

likely to result in some recovery of domestic demand — and therefore imports —

delivering a degree of rebalancing to the current account. Nonetheless, hard hit labor

markets and a deteriorating investment climate will likely weigh on domestic sources of

growth, keeping the current account above its long-term average.

-3

-2

-1

0

1

2

3

4 2008

200920102011

201220132014201520162017201820192020

Percent of GDP

Mexico: Current Account Balance

Income Services Goods Current Account Balance

Sources: Banxico, INEGI, Haver
39

The Mexican peso is a freely

traded, global currency that

responds flexibly to shifts in

global sentiment. Early in

the COVID-19 pandemic, the

peso depreciated by as much

as 25% against the dollar

before recovering to end2020 just 5.2% weaker

against the dollar, as global

risk aversion subsided in the

second half of the year. On a

real effective basis, the peso

weakened 4.2% in 2020 and has largely tracked Mexico’s terms of trade over the past 15

years. In its latest External Sector Report, the IMF assessed that Mexico’s external position

in 2019 was broadly in line with economic fundamentals and desirable policies. Mexico

has intervened in foreign exchange markets only minimally since 2017. Notably, almost all

of its interventions over the past decade have been foreign exchange sales that have

supported (strengthened) the currency. Mexico is very open to capital flows, has refrained

from capital flow management measures, and has a highly liquid currency. As such, the

peso acts as an important shock absorber for Mexico. Additionally, as of end-2020, Mexico

has over $184 billion in foreign exchange reserves, together with $133 billion in available

swap and credit lines,

17 to add to its external buffers. In April 2020, Mexico drew on $6.6

billion of its $60 billion swap line with the Federal Reserve and, as of end-March 2021, has

repaid $6.2 billion. In its latest External Sector Assessment, the IMF assessed Mexico’s

2019 foreign exchange reserves levels to be adequate across a range of metrics.

Mexico is timely in publishing

its foreign exchange market

intervention, publishing

monthly purchases and sales

with about a one-week lag

and providing intervention

data from 1996 onwards. 

Banxico typically conducts its

foreign exchange

transactions with the private

sector under rules-based,

transparent programs to

counter volatility or accumulate reserves.18 The last time Banxico intervened in the spot

17 These comprise a $61 billion IMF Flexible Credit Line, a $60 billion temporary (pandemic) swap line with

the Federal Reserve, and swap lines under the North American Framework Agreement (NAFA) with the

Federal Reserve and U.S. Treasury of $3 billion and $9 billion, respectively.

18 See “Reserves Management and FX Intervention in Mexico” by Banxico Deputy Governor Javier Guzmán

Calafell. https://www.banxico.org.mx/publicaciones-y-prensa/discursos/%7BEA88E47F-8EC7-14F7-9B19-

B4649E0EE3E6%7D.pdf.

50

60

70

80

90

100

110

120

130

140

50

60

70

80

90

100

110

120

130

140

Jan-07Jan-08Jan-09Jan-10

Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21

Indexed to 20Y Avg = 100

Mexico: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements

-4

-3

-2

-1

0

1

2 Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Billion U.S. Dollars

Net Spot Market Intervention

Change in Nondeliverable Forward Book

Sources: Banxico, U.S. Treasury estimates 

Mexico: FX Intervention
40

market was in January 2017, when Banxico sold $2 billion in foreign exchange on the

month to dampen heightened volatility and support the peso. Since then, Banxico has

intervened minimally in forwards markets to defend the peso, most recently selling $2

billion in March 2020 during heightened financial market pressures. The last time the

central bank purchased foreign exchange from the private sector was in October 2011,

where net foreign exchange purchases during the year totaled 0.4% of GDP ($4.6 billion).

The country’s prudent, inflation-targeting monetary policy and flexible exchange rate

regime remain crucial pillars of the macroeconomic framework for Mexico’s resilience to

shocks.

Looking forward, although the IMF expects GDP growth to recover in 2021 to 5.0%,

tightening mobility restrictions in the first quarter amid a resurgence of COVID-19

infections and deaths may continue to weigh on Mexico’s recovery. Continued fiscal

austerity and a deteriorating domestic investment climate also will likely weigh on

domestic demand and limit external rebalancing. The absence of strong counter-cyclical

response to the pandemic arguably did not offset a sharp increase in poverty during the

pandemic, which the authorities preliminarily estimated to have risen by 7-8% (9-10

million people), with a consequent decrease in consumption that may prove durable. The

IMF has cautioned that per capita income will remain below pre-pandemic levels until the

latter half of the decade.

Under-investment by the private sector threatens to hamper recovery and reduce longterm growth potential. Mexico’s costly support to increase the market dominance of lossmaking state firms drains public resources for essential spending and marginalizes

investment in renewable energy that would reduce user costs and free fiscal space for

more productive investment and social protection. Insofar as net energy exports from the

United States to Mexico may decline as a result of Mexico’s policy objective of greater fossil

fuel independence, Mexico’s trade surplus with the United States may increase. 

Enhanced Analysis Under the 2015 Act

Taiwan

Recent Developments

Taiwan’s swift public health response to the COVID-19 pandemic helped it contain its

domestic outbreak to just 985 confirmed infections and 10 deaths as of March 14, 2021

(out of a population of nearly 24 million). The authorities were able to avoid a national

lockdown by relying heavily on preventative measures (e.g., building up a stockpile of

masks for widespread domestic use, social distancing, rigorous application of quarantines,

and strict border controls) as well as aggressive testing, contact tracing, and nearly

universal compliance with quarantines that helped prevent widespread community

transmission. 

The authorities approved cumulative fiscal measures in 2020 totaling $44.5 billion (6.6%

of GDP), which included measures to support public health, coupons to support
41

consumption, and targeted support for small and medium enterprises (SMEs). The scale of

Taiwan’s fiscal relief package is notable given that the authorities historically have been

reticent to use fiscal policy to support growth. 

Taiwan’s central bank implemented several measures to ease monetary conditions and

stabilize financial markets, including lowering the discount rate 25 basis points to 1.125%

in March 2020, a record low and the first rate cut since 2016. The central bank has held

rates steady since then, citing continued low inflation and monetary and fiscal easing by

many of its trading partners. The central bank also introduced in April 2020 a special

accommodation facility to provide support to SMEs at below market rates for one year, and

both increased its size and extended its duration to provide a total of TWD300 billion

($10.7 billion, 1.6% of GDP) through June 2021. A 2019 measure designed to encourage

Taiwanese companies to bring accumulated offshore FX holdings back on shore to invest

locally as foreign direct investment helped mitigate some capital outflow pressures in the

first half of 2020 while the central bank also deployed funds from the National Stabilization

Fund to support the equity market in the first half of 2020. Amid concerns that the low

interest rate environment and foreign capital repatriation from some Taiwanese firms was

fueling excessive inflows into the property market, the central bank implemented

prudential restrictions on mortgage loans in December 2020.

Real GDP grew a relatively strong 3.1% year-over-year in 2020. Surging global demand for

Taiwan’s exports of semiconductors and other high-tech equipment helped lift real GDP

growth from external shocks in the second quarter of 2020, with real GDP growth falling

from 2.5% year-on-year in the first quarter of 2020 to 0.4% year-on-year in the second

quarter before recovering to 4.3% and 5.1% in the third and fourth quarters, respectively,

on a year-on-year basis.

Despite Taiwan’s success in controlling the pandemic, domestic demand remained weak

and private consumption failed to recover fully from a significant contraction in the second

quarter, ultimately falling by 0.9% in 2020 from one year earlier. The authorities recently

increased their real GDP forecast for 2021 to 4.6% from 3.8% previously, citing

expectations of continued strong export growth, particularly among technology related

firms, though global economic uncertainties around the pandemic and oil prices pose

downside risks. 

The TWD appreciated 6.5% against the dollar in 2020, 4.8% of which occurred in the

second half of the year. However, in the second half of the year, the TWD depreciated

modestly on a nominal effective basis (0.6%) and on a real effective basis (0.9%). For the

full year, the TWD appreciated 2.5% on a nominal effective basis while also appreciating

2.2% in 2020 on a real effective basis. The Taiwanese authorities have publicly disclosed

net purchases of foreign exchange in 2020 of $39.1 billion, which is equivalent to 5.8% of

GDP. The majority of these purchases occurred in the second half of 2020 ($35.2 billion or

5.3% of GDP), with particularly large interventions in November and December, according

to Treasury estimates.
42

Enhanced Analysis

A series of liberalizing economic reforms, an active industrial policy supported by a high

national savings rate, and high levels of educational attainment enabled Taiwan to

experience rapid industrialization between the mid-1960s and late-1980s. During this

period, Taiwan became a major manufacturing center, and export growth averaged 20-

30% per year while real GDP growth averaged 10% annually. 

As local manufacturers moved up the value chain, Taiwan continued to post high, albeit

declining, GDP growth rates in the ensuing decades with the only full year contractions

coming during the global recessions of 2001 and 2009. Taiwan’s skilled labor force, welleducated population, and leading role in global semiconductor production has helped it

occupy a key position in global technology supply chains and attract significant foreign

direct investment inflows. 

In the years following its World Trade Organization (WTO) accession in 2002, Taiwan’s

exports to China grew rapidly as Taiwan-based firms shifted manufacturing operations to

China amid rising labor costs in Taiwan and these firms became more integrated into

regional supply chains, especially in IT products. Exports to China and Hong Kong typically

account for more than 40% of Taiwan’s total exports, and fluctuations in Taiwan’s

industrial production closely track exports to China. Taiwan’s GDP growth remains highly

dependent on exports which account for about 77% of GDP.

Taiwan has maintained a tightly managed floating exchange rate regime since the central

bank assumed management of Taiwan’s foreign exchange market in 1979. Initially, Taiwan

employed extensive use of foreign exchange and capital controls to preserve domestic

savings, restrict foreign ownership in certain sectors, and reduce the financial stability

risks associated with international capital flows. Taiwan’s gradual liberalization of these

capital controls, beginning in the 1990s, coincided with Taiwan’s drive to join the WTO. 

However, even after substantially liberalizing capital controls, Taiwan continued to actively

use foreign exchange purchases by the central bank to keep the exchange rate artificially

undervalued. This not only supported continued strong export growth but also combatted

domestic price weakness in times of deflation such as the early 2000s. Moreover, several

regulatory measures remain, and certain foreign exchange transactions require approvals,

such as for remittances above set thresholds and repatriation of some investment capital

and profits. Taiwanese authorities also employ other measures such as restrictions on

onshore foreign exchange hedging and limits on U.S. dollar borrowing by local firms, as

well as informal guidance to firms to restrict selling U.S. dollars during periods of TWD

appreciation, according to external analysts. Financial regulatory measures, such as

ceilings on life insurers’ exposure to foreign exchange risk, impact the pace of capital

outflows taking place on private balance sheets. Overall, the current restrictions tend to be

geared toward preventing speculative inflows but also serve to somewhat insulate the

TWD from rapid adjustment to market dynamics. 

Decades of active exchange rate management, direct intervention in foreign exchange

markets that have largely weakened the TWD, and the use of off-balance sheet instruments
43

such as foreign exchange swaps, have thus resulted in a structurally undervalued TWD

exchange rate that failed to adequately adjust in the face of Taiwan’s persistently large

current account surpluses. At the same time, Taiwan’s geopolitical isolation, its lack of IMF

membership, and its dependence on imported energy and external demand more broadly

argued for a larger than normal external buffer.

Taiwan has historically been reluctant to use its fiscal policy to stimulate growth and has a

legislatively mandated limit on fiscal borrowing: central government debt (31% of GDP as

of 2019) plus local government debt (6% of GDP as of 2019) cannot exceed 50% of the

average general government GDP of the previous three years. This fiscal restraint has

enabled Taiwan to maintain low levels of public debt, at 37% of GDP in 2019, down from a

multi-decade peak of 48% of GDP in 2012. This relative fiscal conservatism has also been a

factor in Taiwan’s consistently high national savings rates, including high corporate and

household savings.

Treasury estimates that Taiwan’s household savings have remained relatively flat over the

past decade at roughly 10% of GDP while corporate savings has increased to roughly 24%

of GDP in 2019 from 20% of GDP in 2010. Taiwan has struggled to increase household

consumption in recent years, with per capita annual consumption growth averaging in the

low single digits. In 2020, per capita consumption contracted 2.7% on the back of

pandemic related uncertainty and weak sentiment. Overall, the national savings rate has

averaged 34% of GDP since 2010, while the level of domestic investment has averaged

around 22% of GDP over the same period. 

This excess domestic savings is mirrored by Taiwan’s correspondingly large current

account surpluses, which have averaged more than 11% of GDP since 2010. The primary

driver of Taiwan’s widening current account surplus has been Taiwan’s growing trade

surplus, which grew by nearly 90% between 2007 and 2015, widening from $38 billion

(9% of GDP) to $73 billion (14% of GDP) over that period. 

Taiwan’s external surpluses widened further in 2020 as export growth picked up in the

second half of the year and import growth remained subdued. Taiwan’s current account

balance stood at 14.1% of GDP in 2020 – the highest since 1987 and an increase from

10.7% of GDP in 2019. Exports of electronic goods have remained resilient during the

pandemic as external demand for computing equipment partially offset the decline in nonelectronic goods exports, and overall goods exports increased 4.3% in 2020 to $345 billion. 

Goods imports declined 1.1% over the course of the year despite an uptick in the fourth

quarter in part due to tepid domestic demand and lower oil prices. Taiwan’s services

balance also shifted from deficit to surplus ($3.3 billion) for the first time since data have

been published, spanning nearly 40 years, mainly driven by a collapse in outbound tourism. 
44

Taiwan has run a consistent

bilateral goods surplus with

the United States since at

least the mid-1970s with this

surplus expanding

significantly over the past

decade. On a trailing twelvemonth basis, Taiwan’s goods

surplus with the United

States first passed the $20

billion threshold for

inclusion on the Monitoring

List in August 2019. 

Taiwan’s goods trade surplus with the United States expanded sharply in 2020 to $30

billion, growing by $7 billion compared to a year prior, driven by a $6.2 billion increase in

Taiwan’s goods exports and an $0.8 billion contraction in Taiwan’s goods imports. 

Increased exports of semiconductors, telecommunications, and other work-from-home

related equipment drove the increase in Taiwan’s exports to the United States. Taiwan’s

exports of such technology goods to the United States totaled $10.3 billion in 2020,

accounting for roughly 17% of Taiwan’s total goods exports to the United States. Taiwan’s

imports of U.S. goods declined 6.5% year-on-year to $30.5 billion in 2020, driven by a

contraction in Taiwanese domestic demand and lower oil prices.

Taiwan’s persistently large current account surpluses have been roughly offset in recent

years by large portfolio outflows. Taiwan’s asset management industry is the largest in the

world relative to GDP, and life insurance assets have driven most of its growth, with assets

under management growing from $844 billion in 2007 to $1.1 trillion in 2020 (166% of

2020 GDP). From 2007 through 2020, portfolio outflows from domestic residents,

primarily the life insurance sector, totaled $645 billion, which offset more than 80% of the

$783 billion in cumulative current account surpluses accrued during that time period. 

These outflows from the life insurance sector were thus able to offset some of the

fundamental pressures for TWD appreciation generated by Taiwan’s large external

surpluses. The accumulation of an increasingly large net foreign asset position has also

brought substantial prudential risks for the life insurance sector. Life insurers hedged

some of their growth in foreign assets via the local banking sector while the central bank

provided foreign exchange liquidity to local banks through the foreign exchange swap

market. This also enabled the central bank to effectively sterilize some of its foreign

exchange intervention. In 2020, outflows from domestic residents totaled $36 billion,

which offset less than 40% of Taiwan’s 2020 current account surplus of $94 billion. 

Net portfolio outflows in 2020 totaled $58.5 billion, an increase from outflows of $46.4

billion in 2019. The bulk of net portfolio outflows ($22 billion) occurred in the first quarter

of 2020 as foreign investors withdrew $16.3 billion from the Taiwanese equity market in

conjunction with a broader global reduction in risk appetite, while net outflows moderated

in subsequent quarters. Notably, the withdrawal of foreign capital largely reversed in the

fourth quarter as foreign investors increased their holdings of Taiwanese securities by $4.4

-5

0

5

10

15

20

2008200920102011201220132014201520162017201820192020

Percent of GDP

Taiwan: Current Account Balance

Income Services Goods Current Account Balance

Sources: Taiwan central bank, Haver
45

billion, mostly in equities. Government measures such as an initiative introduced in 2019

to encourage Taiwanese companies to repatriate offshore foreign exchange holdings back

onshore appear to have partially mitigated Taiwan’s capital outflows over the course of

2020. Taiwan’s insurance firms, which have historically been a source of large financial

outflows due to their demand for higher yielding overseas corporate bonds, reduced their

pace of overseas asset accumulation in 2020. 

The reduction in portfolio outflow pressures, combined with a surging trade surplus in the

second half of 2020, exerted appreciation pressures on the TWD. This recent appreciation

comes on the back of several years of gradual exchange rate adjustment. The TWD

appreciated 17% against the dollar between end-2015 and end-2020 while the TWD also

appreciated 13% on a nominal effective basis over the same period. On a real effective

basis, the TWD appreciated 8% over the same five-year period. This places the real

effective exchange rate roughly where it was in early 2007, suggesting scope for further

adjustment in the TWD remains. 

The IMF does not currently

publish a valuation

assessment of the TWD. 

External analysts assessed in

2018 that the TWD was

undervalued by as much as

21%, an assessment that is

consistent with a sustained,

large external surplus, and

relatively limited adjustment

of the real exchange rate

over time.19 Unlike IMF

assessments of external

positions, these estimates do not take into account a comprehensive set of economic

fundamentals or the effects of macroeconomic policies on Taiwan’s exchange rate

valuation. 

Taiwan publicly disclosed net foreign exchange purchases totaling $3.9 billion (0.6% of

GDP) over the first half of 2020 and $35.2 billion (5.3% of GDP) over the second half of

2020.20 This is broadly consistent with Treasury staff estimates that Taiwan’s central bank

made net foreign exchange purchases of $39.5 billion in 2020 (equivalent to 5.9% of GDP)

after adjusting for changes in interest income and a $6.8 billion decline in Taiwan’s

outstanding foreign exchange swaps position (illustrated in the chart below). Taiwan has

accumulated abundant foreign exchange reserves, totaling $530 billion (79% of GDP) as of

19 “Estimates of Fundamental Equilibrium Exchange Rates,” William R. Cline, Economic International Inc.,

November 2018.

20 Treasury’s estimates are more frequent and cover activity in the spot market as well as in the central

bank’s forward position. 

80

90

100

110

120

80

90

100

110

120

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

Indexed to 20Y Avg = 100

Taiwan: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
46

December 2020. Treasury

estimates that the bulk of

Taiwan’s net foreign

exchange purchases occurred

in November and December

2020 ($25.7 billion or 3.8%

of GDP) when public

statements by central bank

officials frequently cited the

effect of large portfolio

inflows into the Taiwanese

stock market on the

exchange rate and potential

financial stability risks associated with such inflows. 

Treasury urges the

authorities to limit foreign

exchange intervention to

only exceptional

circumstances of disorderly

market conditions and to

avoid asymmetrical

intervention to resist

appreciation in line with

economic fundamentals. 

Further appreciation in line

with economic fundamentals

would also help reduce

Taiwan’s large and durable external surpluses. Treasury encourages the Taiwanese

authorities to build on last year’s progress in increasing transparency and take further

action, particularly with respect to fully reporting foreign exchange reserves data in the

widely accepted format of the IMF’s Special Data Dissemination Standard. 

More broadly, the authorities should consider policies that support a durable reduction in

the gap between Taiwan’s savings rate which, at 39% of GDP, is among the highest in the

world, and its investment rate (22% of GDP). This should include measures to both lower

savings and raise investment. Specifically, the authorities should consider fiscal policies to

boost consumption, including extending some fiscal measures designed to support

household consumption such as the current vouchers program. More robust fiscal support

for Taiwan’s social safety net could also help lower savings and expand care for the elderly

as Taiwan adjusts to coming demographic shifts. More broadly, efforts to diversify growth

drivers away from exports and toward consumption and services would reduce the

incentives to maintain an undervalued exchange rate and bolster Taiwan’s resilience to

external shocks. 

-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

Billion U.S. Dollars

Taiwan: Estimated FX Intervention

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

90

92

94

96

98

100

102

End-19

Mar-20

Apr-20

May-20

Jun-20

Jul-20

Aug-20

Sep-20

Oct-20

Nov-20

Dec-20

Billion U.S. Dollars

Taiwan's Swap Position*

*Swap position includes non-TWD swap positions, which were subsequently unwound 

within a 12-month period.

Source: Taiwan central bank
47

Vietnam

Enhanced Analysis and Engagement

Treasury conducted enhanced analysis of Vietnam in its December 2020 FX Report.21 A

summary of recent economic developments is provided below, along with an update on

Treasury’s ongoing enhanced engagement with the Vietnamese authorities.

Vietnam has not been as hard hit by the COVID-19 pandemic as many peers, reflecting in

part the success of the authorities’ swift containment measures. Vietnam’s GDP growth

rate in 2020 was a relatively resilient 2.9%. As of late March 2021, Vietnam had recorded

approximately 2,600 cases and less than 50 deaths. The country’s COVID-19-related fiscal

relief was relatively small compared to peers. Over the course of 2020, the Vietnamese

authorities enacted a range of fiscal measures totaling about 4.1% of GDP in response to

the COVID-19 pandemic. The measures included tax deferrals, exemptions, and reductions,

cash transfers, and additional health spending. Budget execution on relief measures lagged

somewhat, however, with the IMF estimating that delivered fiscal relief totaled 40% of

planned measures through end-November 2020. The IMF projects 2021 GDP growth to

accelerate to 6.5% as the normalization of economic activity continues.

In 2020, according to

preliminary headline current

account figures provided by

the authorities to Treasury,

Vietnam ran a current

account surplus of 3.7% of

GDP, slightly narrowing from

3.8% of GDP in 2019.22 The

main driver of the growing

current account surplus

continues to be Vietnam’s

goods trade surplus, which

increased to $20 billion in

2020 from $10 billion in 2019.

23 While global trade contracted sharply in the first half of

2020 due to the COVID-19 pandemic, Vietnam’s exports bounced back strongly in the

second half of the year, pushing goods exports in 2020 up 7% over 2019. Meanwhile,

Vietnam’s goods imports rose 3.7% year-over-year, as import demand staged a strong

21 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 (Dec. 2020). Pages 48-55.

https://home.treasury.gov/system/files/206/December-2020-FX-Report-FINAL.pdf 

22 Vietnam is in the process of revising its GDP figures, resulting in significant revisions to GDP levels.

However, quarterly revised figures are not available. In this Report, we estimate a revised series of quarterly

GDP based on the degree of revisions to the annual figures used when calculating current account balances

and foreign exchange intervention as a share of GDP.

23 Complete BOP data with individual components for the fourth quarter of 2020 were not publicly available

as of this Report’s release. The goods trade data cited in this paragraph is reported monthly by Vietnam’s

General Statistics Office and is not identical to the BOP data.

-15

-10

-5

0

5

10

15

200820092010201120122013201420152016201720182019

2020*

Percent of GDP

Vietnam: Current Account Balance

Income Services Goods Current Account Balance

*Data for the four quarters ending 2020Q3

Sources: IMF BOP statistics, State Bank of Vietnam
48

recovery in the law few months of 2020. Vietnam’s successful, dynamic foreign-invested

enterprise (FIE) sector continues to be the key driver of its growing trade and current

account surpluses over the past five years.

Coming into 2020, Vietnam’s services trade deficit had gradually narrowed for several

years, declining from a $4.8 billion deficit in 2015 to $1.2 billion by 2019. However, the

COVID-19 pandemic led to the collapse of tourism, dramatically curtailing Vietnam’s

services exports. The services deficit widened in each of the three quarters of 2020 on a

year-over-year basis to reach $8 billion over the first nine months of 2020.

Vietnam’s income balance in 2020 was stable. The primary income balance continued to be

in deficit, which in large part reflects profits from the FIE sector being paid out to foreign

owners. Meanwhile, Vietnam’s secondary income balance, which includes remittances,

remained in surplus, though at a lower level than the primary income deficit. The World

Bank estimates that inward remittance flows dropped 8% year-over-year to about $15.6

billion in 2020, equivalent to about 5% of GDP. 

In 2020, Vietnam’s bilateral goods trade surplus with the United States widened to $70

billion, the largest bilateral imbalance on record between the two countries. Vietnam’s

exports to the United States grew about 19.5% in 2020, while imports from the United

States decreased 8%. Vietnam’s growing bilateral trade surplus continues to reflect the

country’s expanding export capacity, particularly in sectors such as apparel, technology,

and electric machinery and equipment. The expanding surplus also reflects Vietnam’s

deepening links with global supply chains, with Vietnam being one of the primary

beneficiaries of the ongoing shifts in Asian supply chains. In 2020, Vietnam ran a $1.5

billion services trade deficit with United States.

In its most recent assessment of Vietnam’s external position, based on 2019 data, the IMF

reported that Vietnam’s external position remains substantially stronger than warranted

by fundamentals and desirable policies, reflecting a less productive domestic economy

relative to the export sector, constraints on private sector investment, a relatively weak

social safety net, and the pace of reserve accumulation. Moreover, the IMF assessment

indicated that the Vietnamese dong was 7.8% undervalued on a real effective basis in 2019,

broadly consistent with its assessment of dong undervaluation in recent years.
49

Since January 2016, the State

Bank of Vietnam’s (SBV)

stated policy has been to

allow the dong to float +/-

3% against the U.S. dollar

relative the central reference

rate of the trading band. The

central reference rate is reset

daily based on the

movements of a basket of

currencies, among other

factors. While emerging

market currencies

experienced significant depreciation pressures at the outset of the COVID-19 pandemic in

spring 2020 as global capital took flight to safety, the dong remained relatively stable

against the U.S. dollar. The SBV held the central reference rate almost flat against the dollar

in February and March 2020, while the dong spot rate depreciated as much as 1.7% below

the reference rate. Aside from this relatively short period of limited volatility, both the

dong spot rate against the U.S. dollar and the SBV’s daily reference rate were virtually flat

on net over the course of 2020. In both nominal effective and in real effective terms, the

dong appreciated in the first half of 2020, but depreciated over the course of the second

half of the year. On net, the dong depreciated 4.3% and 4.7% over 2020 on a nominal

effective basis and real effective basis, respectively.

Year-to-date as of end-March, the SBV’s daily reference rate has weakened by about 0.5%,

while the dong spot rate against the U.S. dollar has appreciated 0.2%. In January 2021, the

SBV announced a change to its foreign exchange intervention practices. Instead of

transacting in the spot market, SBV will now transact in the 6-month forward market for

foreign exchange. Moreover, in February 2021 the SBV announced that it will only

intervene in the foreign exchange market on a weekly basis going forward.

Vietnam does not publish

data on its foreign exchange

intervention. The

Vietnamese authorities have

conveyed credibly to

Treasury that net purchases

of foreign exchange in 2020

were 4.4% of GDP. This

figure is equivalent to about

$14.9 billion. Net purchases

of foreign exchange were

relatively limited in early-to

mid-2020 as the pandemic

took hold and global financial conditions tightened. FX purchases rapidly picked up in

August 2020 and remained at elevated levels through the remainder of the year.

-2

-1

0

1

2

3

4

5

6 Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Billion U.S. Dollars

Vietnam: Estimated FX Intervention

Sources: State Bank of Vietnam, U.S. Treasury estimates

70

80

90

100

110

120

130

70

80

90

100

110

120

130

Jan-07Jan-08Jan-09Jan-10

Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21

Indexed to 20Y Avg = 100

Vietnam: Exchange Rates

Bilateral vs. USD REER NEER

Sources: Vietcombank, JP Morgan
50

The Vietnamese authorities have conveyed credibly to Treasury that gross reserves stood

at 26% of GDP at the end of 2020. This is equivalent to about $95 billion, implying that

gross reserves expanded by 22% in 2020. Reserves stood at 313% of gross short-term

external debt as of the third quarter of 2020. The continued build-up of reserves in recent

years has brought them into the range the IMF considers adequate based on its reserve

adequacy metric for fixed exchange rate regimes (with IMF staff estimating reserves at

108% of the metric at end-2020). Reserves were already assessed to be adequate prior to

2020 according to the IMF’s adequacy metric for flexible exchange rate regimes.

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

accordance with the 2015 Act. As part of this process and consistent with the 2015 Act,

Treasury is working with the Vietnamese authorities to develop a plan with specific actions

to address the underlying causes of Vietnam’s currency undervaluation and excessive

external surpluses.

Switzerland

Enhanced Analysis and Engagement

Treasury conducted enhanced analysis of Switzerland in its December 2020 FX Report.24 A

summary of recent economic developments is provided below, along with an update on

Treasury’s ongoing enhanced engagement with the Swiss authorities.

Switzerland was one of the countries in Europe hit early and hard by COVID-19, leading the

government to declare a national state of emergency in mid-March 2020. The number of

active and new cases declined sharply in April 2020 but started rising again in June as the

authorities eased public health and mobility restrictions. Starting in October, the number

of new COVID-19 cases surged, with new infections significantly above spring 2020 highs. 

As a result, the Swiss Federal Council reintroduced several containment and lockdown

measures, which were eased gradually since March 2021 as COVID-19 cases started to

decline. However, the recent uptick in cases has halted further reopening. Since the

beginning of the COVID-19 crisis, Treasury estimates that Switzerland has announced fiscal

stimulus amounting to nearly 11% of GDP, including both direct and indirect measures,

although less than half of the funds made available have been used thus far.

While Swiss economic activity has been hard hit by the pandemic and related containment

efforts, it has been impacted less than in most neighboring countries. Overall,

Switzerland’s economy contracted 2.9% in 2020. The Swiss finance ministry (SECO)

projects the real economy will expand 3% in 2021 (below the IMF’s growth forecast of

3.5% in the April 2021 WEO), although the forecast remains subject to significant downside

risks.

24 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 (Dec. 2020). Pages 48-55.

https://home.treasury.gov/system/files/206/December-2020-FX-Report-FINAL.pdf 
51

The sharp pullback in global

risk appetite in spring 2020

amid the widening pandemic

generated a spike in safe

haven capital flows into

Switzerland, putting

pressure on the Swiss franc

to strengthen and weighing

on domestic inflation

pressures. Over 2020, the

Swiss franc remained

broadly unchanged against

the euro, appreciating 9.5%

against the dollar and 3.5% on a real effective basis. 

Switzerland has for many

years run large current

account surpluses, with the

surplus reaching 6.7% of GDP

in 2019. The current account

surplus declined significantly

to 3.7% of GDP in 2020 due

to lower goods and services

surpluses. Switzerland’s

historically tight fiscal policy

has contributed to its large

and persistent current

account surpluses. Even against the context of the current COVID-19 crisis and relatively

large announced fiscal stimulus, Switzerland’s general government deficit only reached

2.6% in 2020 (significantly smaller than in neighboring countries). The Federal Finance

Administration projects the deficit to reach 3.5% in 2021 before returning to balance in

2022. Other structural factors also play a role, including high per capita income; a large

prime-saver-aged and aging population; a high household savings rate, which is almost

double the advanced economy average per OECD data; limited domestic investment

opportunities; measurement issues; and a large net international investment position

(NIIP), in which returns further raise the income balance. Even after accounting for the

frequently large downward revisions due to changes in investment income, Switzerland’s

current account surplus has averaged over 8% of GDP since 2010, although it has declined

since the global financial crisis (when it reached nearly 15% of GDP). Since the global

financial crisis, the composition of the current account has evolved, with the primary

income and services trade surpluses declining and the goods surplus expanding due to

merchanting and the pharmaceutical sector.

In 2020, Switzerland’s goods trade surplus with the United States reached $57 billion, more

than double the annual surplus of $27 billion in 2019. Switzerland maintains a large and

rising goods trade surplus with the United States, but this traditionally has been mirrored

70

80

90

100

110

120

130

140

70

80

90

100

110

120

130

140

Jan-07Jan-08Jan-09Jan-10

Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21

Indexed to 20Y Avg = 100

Switzerland: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements

-10

-5

0

5

10

15

200820092010

2011201220132014201520162017201820192020

Percent of GDP

Switzerland: Current Account Balance

Income Services Goods Current Account Balance

Sources: Swiss National Bank, Haver
52

largely by a services trade deficit. The unusually large increase in the goods surplus in

2020 can be partially attributed to a surge of private Swiss gold exports to the United

States as the COVID-19 pandemic worsened and U.S. investors increased gold bullion

purchases in the first half of 2020. Notably, Swiss gold exports to the United States in 2020

jumped to $15.4 billion from $1.2 billion in 2019. In 2020, Switzerland’s bilateral services

trade deficit with the United States stood at $21 billion, slightly lower from $22 billion in

2019. In most recent years, the United States’ trade deficit with Switzerland was closer to

balance when including services data, except for 2020.

To buffer the shock to

activity from COVID-19, limit

franc appreciation, and

combat deflationary risks,

the SNB also significantly

eased monetary policy in

2020 through a range of

measures. As an issuer of a

global reserve currency,

Switzerland experienced

intensified pressure from

safe haven inflows in the

first half of 2020 as a result

of the COVID-19 crisis. The SNB responded by stepping up its foreign exchange purchases

significantly to stem franc appreciation and deflationary pressure, and massively increased

its intervention in foreign exchange markets in the spring of 2020. Over the first half of

2020, the SNB purchased $93 billion (90 billion francs) in foreign exchange (equivalent to

26% of 2020 first semester GDP). These purchases in the first half of the year accounted

for over 80% of overall Swiss foreign exchange purchases in 2020. In addition, the SNB

raised the exemption threshold from negative interest rates for sight deposits in April to 30

times minimum reserves (up from 25 times previously). The SNB also introduced a COVID19 refinancing facility that would operate in tandem with surety and loan guarantee

programs offered by the federal government and cantons to allow banks to obtain liquidity

from the SNB. Since April, the SNB has been providing liquidity via the repo market, and, in

July, adjusted the rate calculation to effectively lower the borrowing cost from its liquidity

shortage facility. The SNB also drew on its standing U.S. dollar swap line with the Federal

Reserve for the first time since spring 2012.25 In its March Monetary Policy Committee

meeting, the SNB maintained its main policy rate at -0.75% and reasserted that it considers

the franc to be “highly valued.” Switzerland’s inflation declined to -0.7% in 2020 (making

2020 the sixth year since 2009 that Switzerland had a negative annual inflation figure), but

the SNB’s inflation outlook has marginally improved since the December 2020 assessment

due to higher oil prices and a weaker franc. The SNB projects inflation to remain weak at

0.2% and 0.4% in 2021 and 2022, respectively.

25 Drawings on the swap line peaked at $10.7 billion in April 2020 and stood at $1.6 billion as of end-March

2021.

-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

Billion U.S. Dollars

Sources: Swiss National Bank, U.S. Treasury estimates 

Switzerland: Estimated FX Intervention
53

The IMF’s assessment of its 2019 external position found that the Swiss current account

surplus was over 5% of GDP stronger than the level implied by medium-term fundamentals

and policies. IMF staff, however adjusted that amount down significantly for specific

measurement issues that affect Switzerland,

26 which had the impact of significantly

reducing the size of the IMF’s estimate of exchange rate undervaluation. Even so, IMF staff

found the franc to be undervalued by about 3.5% on a real effective basis.

In September 2020, the SNB announced it would start reporting the volume of foreign

exchange market operations on a quarterly basis (compared to its previous annual

disclosure). The SNB disclosed that it spent $115 billion (109.7 billion francs, 15.3% of

GDP) on currency interventions in 2020. Between January and December 2020, Treasury

estimates that SNB net foreign purchases have totaled $112 billion (or 14.9% of GDP). As a

result of the SNB’s monetary policy actions from the global financial crisis onwards, the

SNB’s balance sheet and foreign exchange reserves have increased significantly. Between

2007 and 2020, the SNB’s balance sheet expanded from 21% of GDP to nearly 145% of

GDP, mainly through foreign asset purchases, making it one of the largest central bank

balance sheets in the world relative to GDP. By the end of December 2020, Switzerland’s

foreign currency reserves stood at $1 trillion, up from $798 billion at end-2019. Smaller

components of the SNB’s reserves portfolio, including gold and highly rated sovereign

bonds, also increased. The IMF assessed that Switzerland’s foreign exchange reserves were

considered adequate (despite its large financial sector) in 2019. More recently, reserves

covered 85% of short-term debt as of end-September 2020 and 135% of GDP as of end2020.

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

accordance with the 2015 Act. As part of this process and consistent with the 2015 Act,

Treasury is discussing with the Swiss authorities specific actions to address the underlying

causes of Switzerland’s external imbalances.

26 These factors include the inclusion of estimated retained earnings on portfolio equity investment and

compensation for valuation losses on fixed-income securities arising from inflation.
54

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 (criteria 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 exchange rates and externally-oriented 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 establishes a process to engage

economies that may be pursuing unfair practices and impose penalties on economies that

fail to adopt appropriate policies within a year of the commencement of such engagement.

Key Criteria

Pursuant to Section 701 of the 2015 Act, this section of the Report seeks to identify any

major trading partner of the United States that has: (1) a significant bilateral trade surplus

with the United States, (2) a material current account surplus, and (3) engaged in

persistent one-sided intervention in the foreign exchange market. Required data for the

period of review (the four quarters through December 2020, unless otherwise noted) are

provided in Table 1 (p. 15) and Table 2 (p. 56). 

As noted earlier, Treasury reviews developments in the 20 largest trading partners of the

United States whose bilateral goods trade exceeds $40 billion annually; these economies

accounted for more than 80% of U.S. trade in goods in 2020. This includes all U.S. trading

partners whose bilateral goods surplus with the United States in 2020 exceeded $20

billion. Treasury’s goal is to focus attention on those economies whose trade with the

United States is most material for the global economy. 

The results of Treasury’s latest assessment pursuant to Section 701 of the 2015 Act are

discussed below.
55

Criterion (1) – Significant bilateral trade surplus with the United States:

Column 3 in Table 2 provides the bilateral goods trade balances for the United States’ 20

largest trading partners for the four quarters through December 2020.

27 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

surplus of at least $20 billion have a “significant” surplus. Highlighted in red in column 1

are the 13 major trading partners that have a bilateral surplus that met this threshold for

the four quarters through December 2020. Table 3 provides additional contextual

information on bilateral trade, including services trade, with these trading partners. 

27 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.
56

Net Purchases

(% of GDP, Trailing 

4Q)

(1a)

Net Purchases

(USD Bil., 

Trailing 4Q)

(1b)

Net Purchases

(USD Bil., 

Trailing 2Q)

(1c)

Net Purchases

6 of 12 

Months†

(1d)

Balance

(% of GDP, 

Trailing 4Q)

(2a)

3 Year Change 

in Balance

(% of GDP) 

(2b)

Balance

(USD Bil., 

Trailing 4Q)

(2c)

Goods Surplus with 

United States (USD 

Bil., Trailing 4Q) 

(3)

Singapore 28.3 97 52 Yes 17.6 0.3 60 4

Switzerland 15.3 115 22 Yes 3.7 -3.5 28 57

Taiwan 5.8 39 35 Yes 14.1 0.0 94 30

India 5.0 131 99 Yes 1.3 2.8 33 24

Vietnam 4.4* 15 10 Yes 3.7 4.3 13 70

Thailand 1.9** 10 6 Yes 3.2 -6.4 16 26

China -0.1 — 1.2*** -15 — 180 -7 — 127 N o 1.9 0.3 274 311

Malaysia 0.6 2 2 Yes 4.4 1.6 15 32

Korea 0.3 5 12 Yes 4.6 0.0 75 25

Japan 0.0 0 0 N o 3.3 -0.9 164 55

Canada 0.0 0 . . N o -1.9 0.9 -32 15

United Kingdom 0.0 0 . . N o -3.5 0.3 -95 - 9

Mexico -0.2 - 2 0 N o 2.4 4.2 27 113

Brazil -2.6 -38 - 2 N o -0.9 -0.1 -12 -12

Netherlands . . . . . . . . 7.8 -3.0 71 -18

Germany . . . . . . . . 6.9 -1.0 260 57

Ireland . . . . . . . . 4.8 3.8 20 56

Italy . . . . . . . . 3.7 1.1 69 30

Belgium . . . . . . . . -0.2 -0.9 - 1 - 7

France . . . . . . . . -2.3 -1.5 -60 16

Memo: Euro Area 0.0 0 0 N o 2.2 -0.9 286 156

Current Account Bilateral Trade

† In assessing the persistence of intervention, Treasury will consider an economy that is judged to have purchased foreign exchange on net for 6 of the 12 months to have met 

the threshold.

*** 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 the PBOC's foreign exchange assets data, intervention was not persistent; 

based on the net foreign exchange settlements data, it was persistent.

* Vietnam does not publish FX intervention. Authorities have conveyed bilaterally to Treasury the size of net FX purchases during the four quarters ending December 2020.

FX Intervention

** Thailand does not publish FX intervention. Authorities have conveyed bilaterally to Treasury the size of net FX purchases during the four quarters ending December 2020.

Table 2. Major Foreign Trading Partners Evaluation Criteria

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; and U.S. Department of the Treasury Staff Estimates
57

Criterion (2) – Material current account surplus:

Treasury assesses current account surpluses in excess of 2% of GDP to be “material” for the

purposes of enhanced analysis. Highlighted in red in column 2a of Table 2 are the 13

economies that had a current account surplus in excess of 2% of GDP in 2020. In the

aggregate, these 13 economies accounted for roughly 60% of the value of global current

account surpluses in 2020. 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 6 out

of 12 months, totaling at least 2% of an economy’s GDP to be persistent, one-sided

intervention.28 Columns 1a and 1d in Table 2 provide Treasury’s assessment of this

criterion.29 In economies where foreign exchange interventions are not published,

28 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.

29 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

Goods Surplus with 

United States (USD 

Bil., Trailing 4Q) 

(1a)

Goods Surplus with 

United States (% of 

GDP, Trailing 4Q) 

(1b)

Goods Trade 

(USD Bil., 

Trailing 4Q) 

(1c)

Services Surplus with 

United States (USD 

Bil., Trailing 4Q)* 

(1d)

Services Surplus with 

United States (% of 

GDP, Trailing 4Q)* 

(1e)

Services Trade 

(USD Bil., 

Trailing 4Q)* 

(1f)

China 311 2.1 560 -22 -0.2 53

Mexico 113 10.4 538 - 6 -0.6 40

Vietnam 70 20.5 90 - 1 -0.4 2

Germany 57 1.5 173 3 0.1 61

Switzerland 57 7.6 93 -21 -2.8 69

Ireland 56 13.3 75 -43 -10.3 78

Japan 55 1.1 184 - 7 -0.1 69

Malaysia 32 9.4 57 - 1 -0.2 4

Taiwan 30 4.5 91 - 3 -0.4 15

Italy 30 1.6 69 - 1 -0.1 11

Thailand 26 5.3 49 - 1 -0.3 3

Korea 25 1.5 127 - 8 -0.5 28

India 24 0.9 79 8 0.3 43

France 16 0.6 70 - 2 -0.1 29

Canada 15 0.9 526 -22 -1.3 80

Singapore 4 1.1 58 -12 -3.5 33

Belgium - 7 -1.3 49 - 2 -0.4 11

United Kingdom - 9 -0.3 109 - 9 -0.3 109

Brazil -12 -0.8 58 - 9 -0.6 21

Netherlands -18 -2.0 73 - 8 -0.9 30

Memo : Euro Area 156 1.2 581 -62 -0.5 251

Source: U.S. Census Bureau, Bureau of Economic Analysis

Table 3. Major Foreign Trading Partners - Expanded Trade Data

Bilateral Trade

*Services data is through end 2020. Services data is reported on a balance of payments basis (not seasonally adjusted), while goods data is reported on a 

census basis (not seasonally adjusted). 
58

Treasury uses estimates of net purchases of foreign currency to proxy for intervention. 

Singapore, Switzerland, Taiwan, India, and Vietnam met this criterion over the four

quarters through December 2020, per Treasury estimates.

Summary of Findings

Pursuant to the 2015 Act, Treasury finds that Taiwan, Vietnam, and Switzerland met all

three criteria in the current review period of the four quarters through December 2020

based on the most recent available data. Additionally, ten major trading partners met two

of the three criteria for enhanced analysis under the 2015 Act in this Report or in the

December 2020 Report. Further, one major trading partner, China, constitutes a

disproportionate share of the overall U.S. trade deficit. Eleven economies — China,

Japan, Korea, Germany, Ireland, Italy, India, Malaysia, Singapore, Thailand, and

Mexico — constitute Treasury’s Monitoring List. 

• China has met one of the three criteria in every Report since the October 2016 Report,

having a significant bilateral trade surplus with the United States, with this surplus

accounting for a disproportionate share of the overall U.S. trade deficit. 

• Japan and Germany have met two of the three criteria in every Report since the April

2016 Report (the initial Report based on the 2015 Act), having material current account

surpluses combined with significant bilateral trade surpluses with the United States. 

• Korea has met two of the three criteria in every Report since April 2016 except for the

May 2019 Report, having a material current account surplus and a significant bilateral

trade surplus with the United States. While Korea’s bilateral trade surplus with the

United States briefly dipped below the threshold in 2018, it rose back above the

threshold in 2019. 

• Italy and Malaysia have 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. 

• 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.

• Switzerland met two of the three criteria in the January 2020 Report, having a material

current account surplus and a significant bilateral trade surplus with the United States. 

Switzerland previously was included on the Monitoring List in every Report between

October 2016 and October 2018, having a material current account surplus and

engaged in persistent, one-sided intervention in the foreign exchange market.

Switzerland met all three of the criteria in this Report and the December 2020 Report. 

• Thailand met two of the three criteria in this Report, having a material current account

surplus and a significant bilateral trade surplus with the United States. 

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.
59

• Vietnam met two of the three criteria in the May 2019 Report, having a material current

account surplus and a significant bilateral trade surplus with the United States, and met

one of the three criteria in the January 2020 Report, having a significant bilateral trade

surplus with the United States. Vietnam met all three of the criteria in this Report and

the December 2020 Report. 

• India met two of the three criteria in this Report, having a material current account

surplus and engaging in persistent, one-sided intervention over the reporting period. 

• Mexico met two of the three criteria in this Report, having a material current account

surplus and a significant bilateral trade surplus with the United States. This is Mexico’s

first inclusion in the Monitoring List and its first inclusion in a Report since October

2015.

• Ireland met two of the three criteria for the first time since the May 2019 Report and

thus is included again in the Monitoring List.

• Taiwan met two of the three criteria in the December 2020 Report, having a material

current account surplus and a significant bilateral trade surplus with the United States. 

Taiwan met all three of the criteria in this Report. 

Treasury will closely monitor and assess the economic trends and foreign exchange

policies of each of these economies.

Further, in this Report, Treasury has determined that there is insufficient evidence to make

a finding that Vietnam, Switzerland, or Taiwan manipulates their respective exchange rates

for either of the purposes referenced in the 1988 Act, though Treasury considers that its

enhanced engagements with Switzerland and Vietnam may enable it to determine whether

either of these economies did so. Additionally, Treasury expects that that engagement with

Taiwan will help it to make the determination required under the 1988 Act for the period

of review. Treasury has also concluded that no major trading partner of the United States

on the Monitoring List has met the standards identified in Section 3004 of the 1988 Act.

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.
60

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.