REPORT TO CONGRESS

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

December 2021

Macroeconomic and Foreign Exchange Policies 

of Major Trading Partners of the United States
Contents

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

SECTION 1: GLOBAL ECONOMIC AND EXTERNAL DEVELOPMENTS..................................... 7

U.S. ECONOMIC TRENDS .......................................................................................................................................7

ECONOMIC DEVELOPMENTS IN SELECTED MAJOR TRADING PARTNERS......................................................19

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

ENHANCED ANALYSIS UNDER THE 2015 ACT................................................................................................46

SECTION 2: INTENSIFIED EVALUATION OF MAJOR TRADING PARTNERS.......................51

KEY CRITERIA .....................................................................................................................................................51

SUMMARY OF FINDINGS .....................................................................................................................................56

ANNEX 1: TRANSPARENCY OF FOREIGN EXCHANGE POLICIES AND PRACTICES ..........59

GLOSSARY OF KEY TERMS IN THE REPORT ...............................................................................66

This Report reviews developments in international economic and exchange rate policies

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

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

19 U.S.C. § 4421.1

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

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

Executive Summary

Following a steep contraction of the global economy in 2020 due to the impact of COVID19, recovery began to take hold in 2021; the IMF projects global growth of 5.9% in 2021

after a 3.1% contraction in 2020. The recovery has been most pronounced in economies

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

population has been vaccinated – though the COVID-19 Delta variant has complicated the

full resumption in economic activity for most. Where policy space and vaccine distribution

has been more limited, recoveries are nascent or weak, leading to a divergence in global

growth. 

The global recovery is subject to downside risks from variants of COVID-19. Given this

additional uncertainty and the potential for start-stop recoveries, countries should employ

available policy space to minimize scarring. Similarly, actions to support the global rollout

and distribution of vaccines are vital to minimize the divergence in growth that has started

to take place. An uneven global recovery is not a resilient recovery. It intensifies

inequality, exacerbates global imbalances, and heightens risks to the global economy. 

The unprecedented nature of the COVID-19 crisis and the difficulty in separating

temporary versus structural changes continue to make analysis of current accounts and

exchange rates an even more difficult task than usual. Additionally, balance of payments

measurement challenges and large data swings and revisions among economies with a high

concentration of foreign multinational corporations complicate these assessments. 

Nevertheless, some developments are concerning. The IMF July 2021 External Sector

Report indicates that, at the global level, current account surpluses widened to 1.8% of

world GDP in 2020, up 0.2 percentage points from 2019. Among major U.S. trading

partners, the very large surpluses of Germany, Korea, Ireland, Taiwan, Netherlands, and

Singapore have each remained significant as a share of GDP into 2021. Over the four

quarters through June 2021, Japan’s current account surplus was slightly smaller than in

2019 as a share of GDP, but in dollar terms was comparatively high at $196 billion. China’s

surplus was even higher in dollar terms at $339 billion over the same period, its highest

level since 2015. Meanwhile, a strong U.S. policy response to the crisis, and the resulting

pick-up in demand, caused the U.S. current account deficit to rise in the first half of 2021 to

3.3% of GDP. 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. 

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
2

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

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

members. 

Nevertheless, a number of economies have conducted foreign exchange market

intervention in a persistent, one-sided manner. Over the four quarters through June 2021,

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

intervened in the foreign exchange market in a sustained, asymmetric manner with the

effect of weakening their currencies. 

Treasury Analysis Under the 1988 and 2015 Legislation

This Report assesses developments in international economic and exchange rate policies

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

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

701 and 702 of the Trade Facilitation and Trade Enforcement Act of 2015 (2015 Act) as

discussed in Section 2. 

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

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

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

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

Report, Treasury has revised its coverage of major trading partners and has adjusted the

thresholds for determining whether the three criteria are met. These changes are

summarized below. 

2 For a list of further commitments, see the April 2021 FX Report. Available at:

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

Beginning with this Report, Treasury will incorporate services trade data to provide a more

comprehensive assessment of U.S. trading patterns, as services have played an increasing

role in international trade over time. In previous Reports, Treasury had focused on goods

trade due to data limitations. However, more recently, official U.S. data on bilateral trade in

services have become available across a larger set of major trading partners on a quarterly

basis. The Report will now assess (i) the largest 20 trading partners of the United States,

which currently comprise more than 80% of U.S. foreign trade in goods and services, and

(ii) any other trading partner that has met at least two criteria under the 2015 Act in the

immediately preceding Report. 

With respect to the three criteria under the 2015 Act, the thresholds Treasury will use are

as follows:

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

trade surplus that is at least $15 billion. By including services data, this threshold

Criteria

Benchmark Threshold Benchmark Threshold

Major Trading 

Partner Coverage

Total Bilateral 

Goods Trade 

(Imports plus 

Exports)

$40 billion1

Total Bilateral 

Goods and Services 

Trade (Imports plus 

Exports)

Top 20

(1)

Significant Bilateral 

Trade Surplus with 

the United States 

Goods Surplus 

with the United 

States

$20 billion

Goods and Services 

Surplus with the 

United States

$15 billion

Current Account 

Balance 3% of GDP

Estimated Current 

Account Gap 

(Latest Available)

1% of GDP 

(if in surplus)

Net FX Purchases 2% of GDP Net FX Purchases 2% of GDP

Persistence of 

Net FX Purchases 

(months)

6 of 12 months

Persistence of Net 

FX Purchases 

(months)

8 of 12 months

1 As of June 2021, 20 trading partners exceeded this threshold.

or

(2)

Material Current 

Account Surplus

Current Account 

Balance 2% of GDP

Treasury Thresholds Under the 2015 Act

(3)

Persistent, 

One-Sided 

Intervention

in Foreign

Exchange Markets

Previous Current
4

captures greater coverage of U.S. trade flows than previously, representing 70% of the

value of all bilateral trade surpluses with the United States in 2016-20. 

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

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

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

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

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

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

of macroeconomic policies. Incorporating current account gap assessments will help

Treasury to better differentiate between current account surpluses that may be

excessive and current account surpluses that may be warranted given economic

characteristics and appropriate macroeconomic policies. For a more detailed

discussion of Treasury’s application of GERAF in the Report, see Section 2. 

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

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

at least 2% of an economy’s GDP over a 12-month period.3 This revision seeks to

sharpen Treasury’s focus on asymmetric patterns of intervention and to avoid

capturing intervention aimed at attenuating the effects of short-term external shocks

while still capturing policies aimed at competitiveness. 

Treasury’s goal in adjusting the coverage of the Report and these thresholds is to identify

more rigorously where potentially excessive external imbalances or unfair currency

practices may be emerging.

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

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

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

or gaining unfair competitive advantage in international trade.

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

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

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

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

Treasury Conclusions Related to the 2015 Act

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

the four quarters through June 2021: Vietnam and Taiwan. Switzerland, which had

previously exceeded the thresholds for all three criteria under the 2015 Act, exceeded two

of the three criteria over the four quarters through June 2021. Treasury conducted

enhanced analysis of Vietnam and Switzerland in the December 2020 Report and of all

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

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

might also meet the criterion depending on the circumstances of the intervention.
5

three economies in the April 2021 Report. In this Report, Treasury conducted enhanced

analysis of Vietnam and Taiwan. 

Though Switzerland no longer meets all three criteria for enhanced analysis, Treasury will

continue to conduct an in-depth analysis of Switzerland until it does not meet all three

criteria under the 2015 Act for at least two consecutive Reports. Meanwhile, Treasury will

continue its enhanced bilateral engagement with Switzerland, which commenced in early

2021, to discuss the Swiss authorities’ policy options to address the underlying causes of its

external imbalances.

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

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

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

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

4 Treasury

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

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

Treasury commenced enhanced bilateral engagement with Taiwan in accordance with the

2015 Act in May 2021 to develop a plan with specific actions to address the underlying

causes of Taiwan’s currency undervaluation.

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 April 2021 Report, Treasury determined that there was insufficient evidence

to make a finding that any economy covered in the Report manipulates its exchange rate

for either of the purposes referenced in the 1988 Act. Through its continued enhanced

engagements with Vietnam, Switzerland, and Taiwan, as well as a thorough assessment of

developments in the global economy as a result of the COVID-19 pandemic, Treasury has

determined that none of these economies intervened in currency markets in the four

quarters through June 2021 to prevent effective balance of payments adjustment or gain an

unfair competitive advantage in trade. Treasury has also concluded that no other major

trading partner of the United States engaged in conduct of the kind described in Section

3004 of the 1988 Act during the relevant period.

Treasury Assessments of Other Major Trading Partners

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

Taiwan met all three criteria under the 2015 Act during the four quarters ending June

2021. 

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

https://home.treasury.gov/news/press-releases/jy0280.
6

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, Mexico, and Switzerland. All except Switzerland were on the Monitoring

List in the April 2021 Report.

China’s macroeconomic policies implemented in response to the adverse economic effects

of COVID-19 targeted the early resumption of manufacturing rather than supporting

household consumption. Absent demand-side stimulus the prospect of Chinese household

consumption supporting sustainable growth is low. China’s failure to publish foreign

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

exchange rate mechanism make it an outlier among major economies, and the activities of

state-owned banks in particular warrant Treasury’s close monitoring.

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

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

review the appropriate metrics for assessing how policies contribute to currency

misalignments and global imbalances. 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. 
7

Section 1: Global Economic and External Developments

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

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

quarters through June 2021 and, where data are available, through end-October 2021. This

Report also covers developments in other trading partners that remain on the Monitoring

List over this period. Total goods and services trade of the economies covered with the

United States amounted to more than $4.3 trillion in the four quarters through June 2021,

more than 80% of all U.S. trade during that period. 

U.S. Economic Trends

Over the past year and a half, the U.S. economy has shown remarkable resilience, despite

the effects of the global pandemic. As of the second quarter of 2021, most major

components of GDP have returned to pre-pandemic levels. Successful early vaccination

efforts and over $5 trillion in combined federal financial assistance have supported

households, small businesses, health care providers, and state and local governments—

enabling one of the strongest recoveries among advanced economies. Moreover, the

economic outlook for the remainder of 2021 as well as 2022 remains favorable, and the U.S.

economy is expected to recover fully—that is, rise to the level of activity that would have

happened without the pandemic recession—by mid-2022, though the potential impact of

coronavirus variants and persisting supply-chain disruptions add uncertainty to the

outlook.

Economic Performance in the Second Half of 2020

The U.S. economy began to recover from the severe disruptions created by the COVID-19

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 rebounded by 18.3% over the final two quarters of the year, including a

21.3% jump in real private domestic final purchases (PDFP)—consisting of a 20.9%

increase in private consumption, a 46.6% jump in residential investment, and a 15.6%

advance in business fixed investment. By the third quarter of 2020, residential investment

had surpassed its pre-pandemic level, and by the fourth quarter of 2020, business fixed

investment had recouped virtually all of its pre-pandemic strength. By the end of 2020, the

level of GDP had reversed three-quarters of its decline during the first half of 2020, and

private consumption was within 2.5% of its level at the end of 2019.

The recovery in labor markets was also relatively robust: by December 2020, 55.2% of

payroll jobs had been recovered, including 60% of jobs lost in the private sector. Over the

same period, the unemployment rate dropped by 8.1 percentage points to 6.7%. By the

end of 2020, the headline labor force participation rate (LFPR) had retraced 1.3 percentage

points to 61.5% and the prime-age LFPR had recovered by 1.2 percentage points to 81.0%,

though both rates were still well below their pre-pandemic highs.
8

Monthly inflation picked up, on average, in the second half of the year as the economy

reopened, energy prices recovered, and federal economic aid programs spurred purchases

of household durable goods. Even so, 12-month inflation rates remained below yearearlier readings. Over the year through December 2020, headline CPI inflation was only

1.4%, or 0.9 percentage points below the rate through December 2019. Core inflation was

1.6%, 0.7 percentage points slower than the year-earlier pace. 

U.S. Economic Recovery through June 2021

In the fourth quarter of 2020 and first quarter of 2021, the U.S. government enacted

additional pandemic aid packages—the COVID-Related Tax Relief Act of 2020 and the

American Rescue Plan (ARP) Act—which provided additional funding to address COVID-19

infections and for vaccinating the population, expanded social safety net programs for the

economically vulnerable, authorized two additional rounds of Economic Impact Payments

(EIPs) to low- and middle-income households, extended unemployment benefits through

September, opened a second draw of Payment Protection Program (PPP) loans, authorized

new loans and grants for small businesses, and provided state and local governments with

financial assistance for a variety of programs. Moreover, three vaccines were approved for

emergency use and began to be distributed, starting with populations most vulnerable to

complications from contracting the coronavirus.

Economic activity accelerated in the first half of 2021 as COVID-19 vaccines became more

widespread, federal aid strengthened household and business balance sheets, consumers’

assessments of the near-term outlook improved, and businesses reopened. Over the first

half of 2021, real GDP expanded by 6.4% at an annual rate. Aside from the unprecedented

pace seen in the initial post-shutdown recovery, growth in the first half of 2021 was the

strongest half-year pace since 1984. As a result of this robust growth, real GDP had

surpassed its pre-pandemic level by the end of the second quarter of 2021. Private

domestic activity played a large role in this strong growth with real personal consumption

expenditures rising by 11.6% over the first half of 2021 and business fixed investment

gaining 11.1% the first two quarters of 2021. 

Meanwhile, the labor market recovery continued during the first half of 2021, albeit at a

slower pace than in the second half of 2020. By June 2021, a total of 15.7 million jobs had

been recovered since April 2020, or 70.4% of those lost during the first two months of the

widespread shutdowns. This included 15.8 million private sector jobs, or 73.8% of those

previously lost. By June 2021, the unemployment rate had fallen to 5.9%, or 0.8 percentage

points lower than the December 2020 level. Despite the improvement in the

unemployment rate, the labor force participation rate was little changed, edging up by only

0.1 percentage point to 61.6% as participation rates for non-prime-age cohorts were either

unchanged or decreased moderately. However, the 0.7 percentage point increase in the

prime-age LFPR, which was 81.7% as of June 2021, was a favorable development for labor

markets.

Inflation increased during the first half of 2021, pushed up by likely transitory factors, such

as recovering energy prices, supply-chain disruptions, elevated demand for durable goods
9

from fiscal stimulus, and increased demand for pandemic-sensitive services as the

economy reopened. In the first half of 2021, the headline CPI rose by 3.6%, with two-thirds

of the increase due to core inflation. The continued recovery of energy prices added 0.8

percentage points to headline CPI growth, while food prices added 0.3 percentage points to

headline inflation—due to higher prices for food services, as well as for meat, poultry, fish,

and eggs. Meanwhile, growth in the CPI for core goods and services rose by 3.0% in the

first six months of 2021, spurred by shortages due supply-chain bottlenecks (particularly

for motor vehicles) and stimulus-induced demand, as well as the re-opening of pandemicsensitive services.

Economic Developments Since June 2021

Through the third quarter of 2021, the U.S. economy continued to expand, albeit at a slower

rate than during the first half of the year, labor markets continued to improve strongly, but

inflationary pressures remain elevated. According to the second estimate, real GDP grew

2.1% at an annual rate in the third quarter of 2021; the slowing was due in large part to

supply-side disruptions that have been exacerbated by the persistence of the pandemic. On

the other hand, the late-summer surge in domestic cases of Delta variant COVID-19 in the

U.S., and the wind-down of federal fiscal aid, were less pronounced headwinds for the

economy during the third quarter. The change in private inventories was the strongest

contributor to real GDP in the third quarter, adding 2.1 percentage points to growth.

The economy has added an average of 604,000 jobs per month since the end of the second

quarter, with much of the recovery in pandemic-affected services like air transport and the

leisure and hospitality industry. As of October 2021, a total of 18.2 million jobs have been

recovered since April 2020, or 81% of jobs lost during the first two months of the economic

shutdown. Meanwhile, the unemployment rate fell by 1.3 percentage points to 4.6% in the

past four months—the lowest rate since the start of the pandemic in March 2020. Labor

force participation rates have remained relatively stable in recent months: the headline

LFPR rate stood at 61.6% in October, unchanged from June; the prime-age LFPR was also

unchanged from June at 81.7% over the past four months.

Inflationary pressures eased modestly in the third quarter but picked up in October. 

Inflation for food and energy goods and services remains elevated, lifted by depressed

labor force participation, supply-chain disruptions, and tight global energy supplies. 

Supply-chain bottlenecks continue to push up prices for some goods as well—in particular,

inflation rates for new and used cars picked up in October as semiconductor shortages

continued to restrict firms’ abilities to replace lean inventories and meet demand. Over the

year through October 2021, the headline CPI rose by 6.2%, above the 12-month rate

through June 2021, while the CPI for core goods and services rose to 4.6%, up from 4.5%

over the year through June 2021. The price index for personal consumption expenditures

(PCE) – the Federal Open Market Committee’s preferred measure for its 2-percent average

inflation target – shows similar, though more restrained growth.5 Over the year ending in

October 2021, PCE inflation was 5.0%, with a quarter of the growth driven by food and

5 The PCE price index is chain-weighted to allow for changes in consumption, whereas the CPI’s consumption

basket is less frequently updated. 
10

energy prices. Core PCE inflation was 4.1% over the year, largely driven by higher prices

for durable goods (1.2 percentage points) and housing (0.5 percentage point).

Federal Finances

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

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

the economy. At the end of fiscal year 2021, the federal government’s budget deficit was

$2.78 trillion (12.4% of GDP), down from $3.13 trillion (15.0% of GDP) at the end of fiscal

year 2020 but still $1.79 trillion higher than in fiscal year 2019. Federal receipts totaled

$4.05 trillion in fiscal year 2021, up $626 billion (18.3%) from fiscal year 2020. Net outlays

for fiscal year 2021 were $6.82 trillion, up $266 billion (4.1%) from fiscal year 2020,

primarily due to the extensive fiscal measures enacted to counter the pandemic’s effects on

low- and middle-income households and small businesses.

At the end of fiscal year 2021, gross federal debt was $28.4 trillion, up from $26.9 trillion at

the end of fiscal year 2020. Federal debt held by the public, which includes debt held by

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

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

fiscal year 2021 (99.7% of GDP).

U.S. Current Account and Trade Balances

The U.S. current account

deficit rose in the first half

of 2021 to 3.3% of GDP, a

year-on-year increase of

0.8 percentage points. 

Strong growth in the

United States driven by

unprecedented fiscal

policy support and

vaccination efforts,

combined with the

unleashing of pent-up

demand after quarantines and travel prohibitions were lifted, have resulted in the rising

deficit.
11

Following subdued trade in the last

half of 2020, trade recovery

accelerated, marking a 33.9% yearover-year growth in June 2021.

Relative to the end of 2020, goods

exports increased about 6.9%

while goods imports increased

4.0%. However, as a share of GDP,

goods imports outweighed goods

exports, leading to a wider U.S.

trade deficit of 3.7% of GDP in the

first half of 2021. Over the same

time frame, net services decreased

2.5%. Surplus net income, which increased 2.9% over the past four quarters, partially

offset the expanded trade deficit.

The U.S. net international investment position marked a net liability of $15.4 trillion as of

end-June 2021. Relative to the end of 2020, the net liability position widened by $1.4

trillion by the end of the second quarter of 2021. The value of U.S.-owned foreign assets

was $34.2 trillion, while the value of foreign-owned U.S. assets stood at $49.6 trillion. 

International Economic Trends

Following a steep contraction of the global economy in 2020, recovery began to take hold

in 2021 for most economies. The recovery has been most pronounced in economies that

undertook strong policy support and where a larger share of the population has been

vaccinated—though the Delta variant complicated the full resumption in economic activity

for most. Where policy space and vaccine distribution has been more limited, recoveries

are struggling to find firm footing, leading to a divergence in global growth. 

Following a 3.1% contraction of the global economy in 2020, the IMF projects global

growth of 5.9% in 2021. Advanced economies, in aggregate, are projected to reach prepandemic trends by 2022. In contrast, emerging market and developing economies are

projected to remain below pre-pandemic trends over the medium term, though there is a

lot of variation within this group. Labor markets are not likely to recover as quickly as

overall economic activity, which is likely to exacerbate inequality between and within

economies. 

The global recovery is subject to downside risks as COVID-19 variants and ongoing supply

chain and transportation bottlenecks add uncertainty to the global outlook. Given this

additional uncertainty and the potential for start-stop recoveries, countries should employ

available policy space to maintain their robust responses, both in the rollout and

distribution of vaccines and in supportive fiscal, monetary, and macroprudential policies, to

minimize the divergence that has started to take place. An uneven global recovery is not a

resilient recovery. It intensifies inequality, exacerbates global imbalances, and heightens

risks to the global economy. 
12

Beyond the uncertainty associated with new variants, there are several reasons to consider

additional fiscal support, including the role of fiscal policy when monetary policy is at the

effective lower bound and spending can address structural issues like climate change,

inequality, and digitalization. Countries in which interest rates are zero or negative,

especially if they also run current account a surplus, should take this opportunity to fund

longer-term public investments to boost productivity and growth. 

-10

0

10

20

30

40

50 India Mexico China Vietnam Taiwan Brazil Malaysia Thailand

2020 H2 2021 H1

-10

0

10

20

30

40

50 Ireland Australia UK United States Netherlands BelgiumItaly Korea Singapore France Switzerland Canada Germany Japan 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
13

Foreign Exchange Markets6

Increased capital flow volatility,

large outflows from emerging

markets, and the rapid strengthening

of the dollar in March and April 2020

subsided against the backdrop of

brighter global risk sentiment and

central banks’ swift actions to calm

markets. The nominal tradeweighted dollar declined 5.2% from

the end of June 2020 to end-October

2021, with improved global risk

appetite and brighter prospects for

economic recovery.

In the second half of 2020, the dollar

depreciated against all major trading

partner currencies. The dollar

weakened at least 5.0% since June

2020 against these currencies, with

exception of the smaller movements

against the Vietnamese dong and

Thai baht. Dollar appreciation

followed in the first half of 2021,

most notably against the euro, Swiss

franc, Japanese yen, Korean won,

Singapore dollar, Indian rupee,

Malaysian ringgit, and Thai baht. 

From June 2021 until October 2021,

the dollar appreciated by 2.3%,

strengthening against a basket of advanced foreign economy currencies by 2.8% and a

basket of emerging market economy currencies by 1.8%.

On a real effective basis, the dollar depreciated 2.1% from end-June 2020 to end-October

2021. Despite this decline, the real dollar is almost 9% above its 20-year average as of endOctober 2021. The IMF continues to judge the dollar to be overvalued on a real effective

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

economies that the IMF assessed to be undervalued in 2020 have adjusted minimally or

depreciated in 2021 (e.g., Germany, Singapore, Malaysia, and Thailand).

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

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

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

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

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

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

-15 -10 -5 0 5 10 15

EME basket

Thailand

Brazil

India

Vietnam

Korea

Singapore

Malaysia

Taiwan

China

Mexico

Sources: FRB, Haver

-15 -10 -5 0 5 10 15

AFE basket

Japan

Euro

Switzerland

Canada

UK

Advanced Foreign Economies (AFE)

-15 -10 -5 0 5 10 15

H2 2020 H1 2021 H2 2021 (through end-Oct.) Net change

U.S. Dollar vs. Major Trading Partner Currencies

(+ denotes dollar appreciation)

Contribution to percent change relative to end-June 2020

Broad dollar index

Emerging Market Economies (EME)
14

Global Imbalances

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

pandemic. The IMF June 2021 External Sector Report indicates that, at the global level,

current account surpluses widened to 1.8% of world GDP in 2020, up 0.2 percentage points

from 2019, with estimated excessive current account surpluses and deficits remaining

unchanged at 1.2% of world GDP. High commodity prices alongside the external demand

generated by advanced countries that are recovering at a quicker pace than emerging and

developing countries are contributors to the global surplus. Among major U.S. trading

partners, the very large surpluses of Germany, Korea, Ireland, Taiwan, Netherlands, and

Singapore have each remained significant as a share of GDP, with the combined surpluses

of these economies totaling $748 billion over the four quarters through June 2021

(equivalent to nearly 40% of all current account surpluses). Japan’s current account

surplus remains comparatively high in dollar terms at $178 billion. China’s surplus was

even higher in dollar terms at $340 billion in the four quarters through June 2021, its

highest level since 2015. 

The containment of the COVID-19 virus and its effects has understandably led to

extraordinary policy responses that continue to weigh on global trade and shifts in saving

and investments, thereby driving increases in global imbalances. With the economic effects

of the pandemic lingering and recoveries remaining fragile, it is still too soon to determine

-30

-20

-10

0

10

20 United States U.K. Canada France Australia India Brazil Mexico China Switzerland Italy Ireland Korea Euro Area Netherlands Vietnam Germany Singapore Malaysia Japan Thailand Percent

2020 REER Gap Assessment (mid)1 YTD 2021 Adjustment2

CA Deficit Economies3 CA Surplus Economies

IMF Estimates of Exchange Rate Valuation Undervalued Overvalued

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

Vietnam, BIS REER Indices, JP Morgan, FRB

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

with the country's medium-term economic fundamentals and desired policies. The midpoint of the gap range is depicted above. REER gap for Vietnam 

uses 2019 REER Gap.

2/Change between end-October 2021 and 2020 average REER.

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

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

the extent to which these shifts are temporary or more persistent. In some cases, these

persistent imbalances also reflect past policy distortions. Yet, divergent recoveries

between advanced economies and emerging markets threaten to exacerbate the buildup of

current account imbalances. 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. Relatively

easy financing conditions present a timely opportunity to pursue 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
16

Capital Flows to Emerging Market Economies

Net capital flows to emerging

market economies stabilized

over the fourth quarter of

2020 and first half of 2021

following the sharp outflow of

portfolio debt and equity

from emerging markets in

early 2020. Portfolio inflows

and robust foreign direct

investment, combined with

decelerating outflows of other

investment, pushed net

capital flows up to $6 billion

by end-2020. Net portfolio

outflows resumed in the first

quarter of 2021, totaling $76

billion, while sustained net

outflows of other investment

continued to weigh on net

aggregate flows.7 Over the

four quarters through June

2021, net outflows of

portfolio and other

investment totaled $401

billion, roughly $91 billion

more than the same period in

2020. During this period,

nonresident net flows

remained positive, suggesting

that foreign investor demand

for emerging market

economy assets recovered, but were offset by resident net outflows. On a cumulative basis,

net portfolio flows have remained well below pre-pandemic levels. Higher frequency data

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

2021, the pace of portfolio equity outflows to emerging markets has stabilized, though net

portfolio equity flows have continued to slowly trickle out of emerging markets excluding

China. 

7 Large resident outflows from China continued into early 2021, totaling $115 billion in end-March.

-300

-200

-100

0

100

200

300

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

USD Billions

Net Capital Flows to Emerging Markets

Financial Derivatives (Net) Other Investment (Net)

Direct Investment (Net) Portfolio Investment (Net)

Net Capital Flows (excl reserves)

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

2021 reflects data through the end-June where available.

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

Capital Outflows

Capital Inflows

-500

-400

-300

-200

-100

0

100

200

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

USD Billions

Time since onset (quarters)

Global financial crisis (2008) Taper Tantrum (2013)

2015 RMB Devaluation 2018 EM Selloff

COVID Sudden Stop (2020)

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

2021 reflects data through the end-June where available.

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

Capital Outflows

Capital Inflows

Cumulative Portfolio Flows to Emerging Markets
17

Foreign Exchange Reserves

Global foreign currency reserves increased by $800 billion over the four quarters through

June 2021, reaching $12.8 trillion. During the second half of 2020, reserve growth was a

product of both net foreign exchange purchases (totaling $303 billion) as well as valuation

effects caused by dollar depreciation against other currencies, which contributed $387

billion to the rise in reserves. Reserves increased further in the first half of 2021 due to net

purchases of foreign exchange totaling $238 billion, though this was offset partly due to

valuation effects, as dollar appreciation contributed to a $128 billion decline in the level

global reserves. Over the four quarters through June 2021, estimated interest income

contributed minimally to the rise in reserves.

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

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

FX Reserves 

(USD Bns)

1Y Δ FX 

Reserves 

(USD Bns)

FX Reserves 

(% of GDP)

FX Reserves 

(% of ST debt)

FX Reserves 

(% of IMF ARA 

Metric)*

China 3,214.0 101.7 19% 226% 120%

Japan 1,294.3 -12.2 25% 40% ..

Switzerland 1,018.8 122.7 129% 82% ..

India 568.7 102.8 20% 555% 197%

Taiwan 543.3 54.6 75% 276% ..

Korea 441.2 42.6 25% 248% 99%

Singapore 393.9 84.1 108% 34% ..

Brazil 336.9 0.1 22% 528% 161%

Thailand 230.0 -0.4 44% 377% 241%

Mexico 185.1 1.9 16% 364% 128%

UK 129.5 -5.4 4% 2% ..

Malaysia 106.3 7.5 29% 114% 118%

Vietnam 99.8 16.5 30% 316% ..

Canada 75.9 1.2 4% 8% ..

France 54.1 0.4 2% 2% ..

Italy 48.5 5.6 2% 4% ..

Australia 37.8 5.2 2% 11% ..

Germany 37.1 -0.8 1% 1% ..

Belgium 10.6 -0.3 2% 2% ..

Netherlands 5.9 1.9 1% 1% ..

Ireland 5.4 1.9 1% 1% ..

World 12,812.1 799.9 n.a. n.a. ..

Foreign exchange reserves as of end-June 2021.

GDP caluclated as sum of rolling 4Q GDP through Q2-2021.

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 Q2-

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

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

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

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

between 100-150% of the ARA metric to be adequate.
18

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

anticipated import costs. Moreover, assessments of adequacy based on composite metrics

across emerging market economies suggest reserves are broadly adequate.8 Meanwhile,

other economies, particularly low-income countries, are facing shortages of foreign

exchange reserves to address external financing needs. The IMF’s August 2021 general

allocation of Special Drawing Rights, equivalent to about $650 billion, should help alleviate

these shortages and provide vulnerable economies with the necessary liquidity to weather

external pressures resulting from the pandemic. Credible and effective macroeconomic

policy frameworks, rather than intervention to accumulate reserves beyond adequate

levels, should serve to buffer external shocks. This is particularly relevant for economies

with other reserve-like resources such as swap lines, sovereign wealth funds, and credit

lines from international financial institutions that can serve as additional buffers. 

Box 1: The Role of the U.S. Dollar in the International Monetary System

The U.S. dollar is the leading currency in the international monetary system. Over the 

past decades, the international monetary and financial system has evolved, 

accommodating increasing cross-border financial flows, bouts of foreign exchange 

market volatility, shifts in exchange rate and monetary policy regimes, and ongoing 

developments in financial technologies. Notably, the international monetary system has 

also experienced the advent of the euro and gradual internationalization of the renminbi. 

However, throughout these changes, the dollar has retained a central role in the world 

economy and the international monetary system. 

This fact is reflected in economic and financial data:

• In 2019 (latest data available), the dollar was on one side of 88% of global foreign 

exchange transactions, up from 85% in 2010 and only slightly below its 1989 share 

of 90%, prior to the existence of the euro. 

• The dollar remains the predominant currency choice for central bank holdings of 

foreign exchange reserves, standing at almost 60% of measured reserves as of endSeptember 2021. 

• The IMF estimates9 about 40% of global trade is invoiced in dollars, even though only 

10% of global exports are destined to the United States. 

• As of 2020, U.S. dollar-denominated assets accounted for 40% of cross-border bank 

claims and more than 40% of outstanding international debt securities. 

• As of end-2020, $12 trillion of the $17 trillion in foreign currency-denominated 

international debt securities outstanding was denominated in dollars.

10 

8 Further detail on this and other adequacy metrics can be found in “Annex I: Foreign Exchange Reserves –

Recent Developments and Adequacy Measures” of the October 2017 FX Report. Available at: 

https://home.treasury.gov/system/files/206/2017-10-17Fall2017FXReportFINAL.pdf.

9 IMF Working Paper 20-126, which provides share of exports and imports invoiced in dollars, euros, and

other currencies where data is available. Data are not available for Mexico and China, two major U.S. trading

partners.

10 Source: BIS. International debt securities are debt securities issued outside of the local market in the

country where the borrower resides. 
19

The long-standing and continued prominence of the dollar is underpinned by a 

confluence of factors including the United States’ strong economic performance, sound 

macroeconomic policies and institutions, open, deep, and liquid financial markets, 

institutional transparency, commitment to a free-floating currency, and strong and 

predictable legal systems. The value of the dollar, which is determined by markets, 

reflects these fundamentals. So long as U.S. policies continue to support these attributes, 

as they have for decades, the dollar’s role will remain firm as the international monetary 

system continues to evolve. 

Economic Developments in Selected Major Trading Partners

China

The economic effects of the pandemic resulted in growth of just 2.3% in 2020, the lowest

since 1976. China’s real GDP grew by 18.3% year-over-year in the first quarter of 2021 and

by 7.9% year-over-year in the second quarter. China’s economic recovery and COVID-19

containment strategy emphasized supply-side support that enabled a rapid resumption of

manufacturing and minimized disruptions in production. At the same time, a focus on

investment instead of household support in combination with an inadequate social safety

net stymied the recovery in domestic consumption, which has been further exacerbated by

lockdowns following periodic outbreaks of COVID-19. The authorities have shifted to a

tighter fiscal stance this year amid renewed efforts to rein in infrastructure and property

investment. China’s monetary policy has continued to normalize following modest

loosening in 2020, but the authorities have shown flexibility recently by taking actions to

ease banks’ funding costs.

China’s current account

surplus rose to 2.1% of GDP

in the four quarters through

June 2021, compared to 1.9%

of GDP in 2020, driven by

larger surpluses in the second

half of 2020. In the first half

of 2021, China’s current

account surplus moderated to

1.5% of GDP, largely driven

by an increase in imports due

to increased commodity

prices, among other factors. Exports slightly increased in the first half of 2021 relative to

the second half of 2020, reflecting China’s ability to maintain its manufacturing capacity

and meet broad-based external demand while pandemic-related supply chain disruptions

impacted other major exporters. Meanwhile, China’s services deficit remains subdued; the

$50.5 billion deficit recorded in the first half of 2021 is roughly one-third of its prepandemic level, primarily due to the collapse of outbound tourism. Treasury assesses that

-5

0

5

10

2008200920102011201220132014201520162017201820192020

2021-Q2

Percent of GDP

China: Current Account Balance

Income Services Goods Current Account Balance

Sources: SAFE, Haver
20

in 2020, China’s external position was stronger than warranted by economic fundamentals

and desirable policies, with an estimated current account gap of 1.7% of GDP. 

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

any U.S. trading partner, reaching $338 billion in the four quarters through June 2021.

China ran a bilateral services trade deficit of $19 billion with the United States over the

same period. Overall, the bilateral goods and services balance reached $318 in the four

quarters through June 2021, compared with $275 billion in the year prior. 

China experienced substantial portfolio debt inflows in the four quarters through June

2021, while inbound foreign direct investment to China reached a record $321 billion over

the same period. These capital inflows, which create pressures for the RMB to appreciate,

were balanced by a large “other investment” deficit, bringing the overall financial account

into a deficit. China’s other investment deficit reached $335 billion in the four quarters

through June 2021, compared to $100 billion in the four quarters through June 2020,

suggesting an increase in capital outflows related to bank activity. A net errors and

omissions deficit of $206 billion, compared to $99 billion a year prior, provided another

balancing outflow and suggests an uptick in undocumented capital outflows that are not

captured within the conventional components of the financial account.11 Treasury’s

estimate of net capital outflows (excluding flows accounted for by trade and direct

investment) totaled $529 billion in the four quarters through June 2021, compared to $297

billion a year earlier. While substantial, these outflows remain below the peak levels

witnessed in 2015 and 2016.

The RMB appreciated by

8.3% against the dollar in the

second half of 2020, but

appreciation moderated in

the first half of 2021 to 1.8%

despite continued strong

trade surpluses. The RMB

appreciated by 1.9% against

the dollar in the first ten

months of 2021. Over the

same period the RMB

strengthened by 5.7% against

the People’s Bank of China’s (PBOC) China Foreign Exchange Trade System (CFETS)

nominal basket and by 2.7% on a real effective basis.

12 

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

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

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

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

11 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.

12 The 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
21

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

of the daily trading band. Chinese authorities can directly intervene in foreign exchange

markets as well as influence the interest rates of RMB-denominated assets that trade

offshore, the timing and volume of forward swap sales and purchases by China’s stateowned banks, and the conversion of foreign exchange proceeds by state-owned

enterprises.

Over the past year, the authorities have taken regulatory measures that in aggregate

appear to disincentivize RMB appreciation. In 2020, the authorities removed the foreign

exchange forward risk reserve ratio and indefinitely suspended the counter-cyclical factor

in setting the daily fix, facilitating RMB depreciation against the dollar. As capital inflows

increased in the second half of 2020, the authorities announced a series of increases to

outbound investment quotas that could provide offsetting capital outflows to stem RMB

appreciation pressures. While the above measures are liberalizing in principle, in practice

the timing of their implementation appeared to disincentivize RMB appreciation. The

authorities also pursued verbal intervention as RMB appreciation pressures mounted,

including a May 2021 statement by a PBOC official emphasizing two-way movements in the

RMB exchange rate, followed days later by comments from a former PBOC official

portraying the RMB’s appreciation as “unsustainable.”13 In June 2021, the PBOC raised the

foreign exchange required reserve ratio for the first time since 2007, which tightened

onshore foreign currency liquidity conditions. China’s lack of transparency and use of a

wide array of tools complicate Treasury’s ability to assess the degree to which official

actions are designed to impact the exchange rate. Treasury will continue to closely monitor

China’s use of exchange rate management, capital flow, and macroprudential measures and

their potential impact on the exchange rate. 

Compared to other major

economies, 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. 

China’s headline foreign

exchange reserves increased

by $102 billion in the four quarters through June 2021, standing at $3.2 trillion. In

contrast, over the same period monthly changes in the PBOC’s foreign exchange assets

recorded no significant changes, increasing by only $6.2 billion. Meanwhile, monthly net

foreign exchange settlement data, another proxy measure for foreign exchange

13 Statement issued by PBOC Deputy Governor Liu Guoqiang, available at

http://www.pbc.gov.cn/en/3688110/3688172/4157443/4253138/index.html, and

Xinhua interview with former Director General of the PBOC’s Financial Survey and Statistics Department

Sheng Songcheng, available at http://www.xinhuanet.com/english/2021-05/30/c_139979127.htm.

-200

-150

-100

-50

0

50

100

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Billion U.S. Dollars

China: Estimated FX Intervention

PBOC FX Assets Bank Net FX Settlement

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

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

exchange purchases of nearly $278 billion (1.7% of GDP) in the four quarters through June

2021, adjusted for changes in outstanding forwards. This figure represents the largest 12-

month sum of net purchases since 2014. The precise causes for the large divergence

between monthly changes in the PBOC’s foreign exchange assets and net foreign exchange

settlements data remain unclear. As Treasury noted in the April 2021 FX Report, the

divergence between these proxy measures could be an indication that monthly changes in

the PBOC’s foreign exchange assets are not adequately capturing the full range of China’s

intervention methods, including official intervention conducted through the state-owned

banks. Overall, these developments highlight the need for China to improve transparency

regarding its foreign exchange intervention activities. 

Chinese authorities must balance supporting economic growth against managing growing

financial stability risks. Lackluster private demand—underpinned by continued weakness

in the labor market—raises concerns that China will not be able to increase reliance on

household consumption absent additional official support. China should seek to reverse

lost momentum on economic rebalancing and strengthen long-term growth prospects by

taking decisive steps to strengthen its social protection system and allow for greater

market openness. Authorities should prioritize structural reforms that reduce state

intervention in the economy and enhance social safety net measures that reduce

precautionary saving and support household consumption growth. 

Japan

Japan’s economic recovery has lagged advanced economy peers. Economic activity

rebounded in the second half of 2020 but faltered in the first quarter of 2021, declining at

an annualized rate of -4.2%, amid rising COVID-19 cases and a reinstitution of state of

emergency measures. Growth turned positive in the second quarter, reaching an

annualized rate of 1.9% on higher household consumption and business investment. 

However, pandemic restrictions continue to hamper a full recovery. The government

responded to the pandemic with robust fiscal policy, enacting three substantial stimulus

packages during FY 2020 (April 2020 – March 2021) that drove a positive fiscal impulse of

6.6 percentage points.14 Monetary policy remains extremely accommodative with negative

short-term rates and yield curve control policies in place. 

14 As measured by the year-to-year change in the general government cyclically adjusted primary balance in

the October 2021 IMF Fiscal Monitor. 
23

Japan’s current account

surplus rose to 3.5% of GDP

over the four quarters ending

June 2021 from 2.9% of GDP

in 2020 on higher goods

exports. Overseas income

from Japan’s substantial stock

of net foreign assets remains

the largest factor driving the

current account surplus. 

Relative to 2020, the primary

income balance remained

steady at 3.6% of GDP over the four quarters ending in June 2021, while secondary income

remained in deficit equal to 0.5% of GDP, leaving the overall income balance unchanged at

3.1% of GDP. Treasury assesses that in 2020, Japan’s external position was stronger than

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

account gap of 1.4%. The goods and services trade surplus with the United States was $57

billion over the four quarters ending in June 2021, up 26% from the same period in 2020.

Japan experienced net capital outflows of 2.9% of GDP in 2020. Direct investment outflows

totaled 2.1% of GDP, while portfolio outflows led by private sector trust and financial

investment firms totaled 0.8% of GDP. Net capital outflows accelerated over the first half of

2021, totaling 5.1% of GDP on the back of surging portfolio outflows. 

The yen appreciated 5.3%

against the dollar in 2020 as

the pandemic sparked a drive

toward safe-haven

currencies. Over the first ten

months of 2021, however,

the yen depreciated 9.5%

against the dollar as

widening interest rate

differentials between the

United States and Japan have

supported dollar strength

over the yen. Likewise, the yen weakened substantially on a real effective basis by 9.3%

over the same period, reflecting in part rising inflation among major trading partners. 

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

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

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

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

appropriate prior consultations. 

-3

0

3

6 2008

200920102011201220132014201520162017201820192020

2021-Q2

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-14

Jan-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
24

Japanese policymakers have prioritized supporting the economy amid the pandemic with

significant fiscal and monetary stimulus. As conditions normalize, Japan should reorient

policy toward structural measures that improve the productive capacity of firms and

individuals to raise potential growth over the long run. Such measures include increasing

domestic investment, promoting labor mobility to enhance wage growth, advancing

enduring corporate governance reforms, and supporting technology adoption across

industries, in particular small and medium enterprises. 

Korea

Korea’s real GDP grew by 6% over the four quarters ending in June 2021, after a modest

contraction in the first half of 2020. Korean authorities complemented robust public health

measures to limit the spread of COVID-19 with accommodative fiscal policy measures. The

authorities deployed an expanded 2021 budget and two supplementary spending packages

projected to bring the fiscal deficit to 4.4% of GDP, roughly the same as a year before. With

a low debt-to-GDP ratio of approximately 47%, Korea has ample fiscal space to support

growth in the medium term and pare down fiscal spending gradually as conditions allow. 

Monetary authorities largely maintained pandemic-related support measures to ease

monetary conditions and support Korea’s economic recovery for much of 2021, but the

Bank of Korea (BOK) implemented a 25 basis points rate hike in August 2021 to address

growing financial imbalances. 

Korea’s current account

surplus widened to 5.7% of

GDP over the four quarters

ending in June 2021,

compared to 3.5% over the

same period in the previous

year. The widening was

driven by an increase in the

goods balance and a

narrowing in the services

deficit, which continued to be

impacted by distortions

related to COVID-19. Treasury assesses that in 2020, Korea’s external position was weaker

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

effect of demographics on national saving. Korea’s bilateral trade surplus with the United

States, inclusive of goods and services, expanded to $19 billion over the four quarters

ending in June 2021, up sharply from $10 billion over the same period in the previous year. 

-4

-2

0

2

4

6

8

10

2008

200920102011201220132014201520162017201820192020

2021-Q2

Percent of GDP

Korea: Current Account Balance

Income Services Goods Current Account Balance

Sources: Bank of Korea, Haver
25

The Korean won appreciated

sharply in the second half of

2020, strengthening 10.5%

against the dollar, driven by

Korea’s large trade surplus

and solid capital inflows. The

won reversed course in 2021,

weakening 7.6% on a

bilateral basis against the

dollar and 5.7% on a real

effective basis over the first

ten months of the year, as

sizeable equity outflows eased appreciation pressures from the current account surplus.

Foreign investors, on net, purchased $97 billion in Korean debt and sold $34 billion in

Korean equities over the first ten months of 2021. 

Korea reported net foreign

exchange purchases of $11

billion (0.7% of GDP) in the

spot market to stem won

appreciation over the four

quarters ending in June 2021. 

Treasury estimates that

Korean authorities made

most of these purchases in

the fourth quarter of 2020,

when the won appreciated

7.4%. Korea has welldeveloped institutions and markets and should limit currency intervention to only

exceptional circumstances of disorderly market conditions. Korea maintains ample foreign

exchange reserves at $446 billion as of July 2021, equal to 2.5 times gross short-term

external debt. Korea publicly reports its foreign exchange intervention on a quarterly

basis.15

Korea has maintained economic support to undergird the return to normal economic

activity and should continue to deploy measures as needed to encourage medium-term

growth. Monetary policy should be carefully calibrated to balance price stability and

financial stability objectives, with care taken to not withdraw monetary accommodation

too quickly. Progress on structural reforms, including strengthening social safety net

programs and addressing labor market duality, would help secure economic opportunity

15 Treasury’s estimates are more frequent and are based on valuation- and interest-adjusted changes in

foreign exchange reserves as well as changes in the central bank’s forward position. Over the four quarters

ending in June 2021, Treasury estimated $31 billion in estimated foreign exchange purchases. Operating

profits from the BOK’s foreign currency security sales and interest income drove the gap between Treasury’s

estimate and the Korean authorities’ reported intervention figure.

-10

-5

0

5

10

15

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

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

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
26

for young workers and reduce old-age poverty while increasing potential growth over the

long term.

The Euro Area

The pace of the euro area recovery exceeded expectations in the first half of 2021, with real

GDP expanding by 9.2% at an annual rate during the second quarter of the year. Domestic

demand has been the primary engine driving the current expansion, led by a dramatic pickup in private consumption expenditure. This reflects a combination of rising real

disposable income and a declining savings rate from substantially above-trend levels at the

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

growth over the first half of 2021, rising alongside the improvement in global economic

conditions, while a continued strong and supportive policy response remains in place to

support the ongoing recovery. Uncertainty related to COVID-19 and disruptions in global

supply chains remain key downside risks, although headwinds from the Delta variant have

been modest relative to earlier waves of the virus. The European Central Bank (ECB)

expects euro area real GDP to exceed its pre-crisis level by the end of 2021, with output

growing by 5% this year and 4.6% in 2022. 

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

was instrumental to setting the foundations for a robust recovery and has remained a key

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

national level in 2020 amounted to around 8% of euro area GDP (including automatic

stabilizers), of which the ECB estimates included 4.2% of GDP in discretionary measures. 

In addition, governments extended financial support to firms and credit guarantees for

bank lending to businesses of about 19% of euro area GDP in the crisis response, much of

which has not been tapped but remains available. Discretionary fiscal measures are set to

expand to 4.6% of GDP this year before falling off sharply in 2022 (to around 1.5% of GDP)

as key crisis response tools such as job retention schemes are wound down. At the EU

level, the roughly $940 billion Next Generation EU pandemic recovery package agreed in

July 2020 is now operational, with recovery fund disbursements likely to drive a significant

pickup in government investment starting from the second half of 2021 and continuing

next year.

The ECB has maintained a highly accommodative stance this year, with the key elements of

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

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

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

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

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

financing conditions can be maintained with a moderately lower pace of net asset
27

purchases under the [PEPP] than in the previous two quarters.”16 In addition, the ECB’s

Targeted Longer-Term Refinancing Operations (TLTROs) continue to make funding

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

pressure on net interest rate margins from negative policy rates. Although headline

inflation figures have risen above the ECB’s 2.0% target level in recent months, the ECB

expects many of the factors behind the recent price surge to dissipate, leaving the outlook

for inflation below target over the ECB’s forecast horizon.

The euro area current account surplus fell to 1.9% of GDP in 2020, from 2.4% in 2019, as

supply chain disruptions constrained production among major exporters. The balance has

widened to 2.7% of GDP over the four quarters through June 2021. Recent projections that

incorporate higher frequency data point to an evolving consensus among professional

forecasters that the latest uptick will prove transient, however, likely narrowing to at or

below 2% of GDP by year-end owing to the stubborn persistence of supply bottlenecks.

Treasury assesses that in 2020, the euro area’s external position was broadly in line with

economic fundamentals and desirable policies. 

The euro depreciated by 5.5%

against the dollar over the

first ten months of the year

after reaching a 12-month

high on January 6, with

widening interest rate

differentials between the

United States and Europe

supporting dollar strength.

The euro real effective

exchange rate depreciated by

2.8% over the same period,

reflecting in part rising inflation among major trading partners. The ECB publishes its

foreign exchange intervention and has not intervened in foreign exchange markets since

2011. 

Germany

Ongoing pandemic restrictions and supply chain disruptions hampered Germany’s

economic recovery in early 2021, but economic activity started to accelerate in the second

quarter, driven by an increase in consumer spending, industrial production, and increasing

demand for German exports. As the recovery continues to take hold, the IMF forecasts

German real GDP to grow 3.1% in 2021, following a 4.6% contraction in 2020. Germany

has extended most pandemic fiscal support measures for households and firms through

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

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

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

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

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

80

90

100

110

120

130

80

90

100

110

120

130

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

Jan-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
28

2021, and the IMF expects the general government deficit to increase to about 6.8% of GDP

in 2021, and gross debt to stay elevated, peaking at 72% of GDP. German headline inflation

has risen steadily in 2021, in part due to the expiration of the 2020 value added tax

reduction, other base effects, supply constraints, and high energy prices. The increase in

inflation may weigh on consumer confidence if prices continue to outpace wage growth.

After narrowing somewhat in

2020 due to the impact of the

pandemic on global trade,

Germany’s current account

surplus increased to 7.5% for

the four quarters through

June 2021, as net exports

recovered faster than

domestic demand. Germany’s

bilateral goods and services

trade surplus with the United

States stood at $66 billion for

the four quarters through June 2021, up from $63 billion in the same period in 2020. 

Treasury assesses that in 2020, Germany’s external position was stronger than warranted

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

3.5% of GDP. The IMF also assesses Germany’s external position to be stronger than

warranted by medium-term economic fundamentals and desirable policies.

The German government took bold measures in response to COVID-19, including the

suspension of the national fiscal rules to allow for new debt issuance. However, Germany

still needs to improve revenue forecasting and address chronic spending under-execution,

which led to persistent fiscal surpluses pre-pandemic. As recovery advances, the incoming

German government should resist returning to fiscal surpluses and continue to deploy its

substantial fiscal space, including through structural measures to bolster current activity,

reduce the labor tax wedge, strengthen efforts to combat climate change, incentivize

innovation, and reinvigorate investment—which would help external rebalancing proceed

at a reasonable pace. 

Ireland

Ireland has weathered the pandemic relatively well despite having instituted one of the

world’s most stringent lockdowns. Real GDP expanded by 5.9% in 2020 on the back of

continued strong pharmaceutical and information technology sector exports. The economy

accelerated further in the first half of 2021, expanding by 16% compared to the first half of

2020, as the rapid vaccine rollout fueled strong consumer spending and construction

activity, alongside continued robust exports. Modified domestic demand, an indicator that

strips out volatile statistical factors associated with multinational corporations, rose by

8.4% quarter-over-quarter on a seasonally adjusted basis in the second quarter of 2021,

(from -5% quarter-over-quarter in the first quarter). This was the second highest

quarterly increase on record, second only to the third quarter of 2020, when the economy

-5

0

5

10

2008200920102011

201220132014201520162017201820192020

2021-Q2

Percent of GDP

Germany: Current Account Balance

Income Services Goods Current Account Balance

Source: Deutsche Bundesbank
29

bounced back following the first lockdown. Starting in July 2021, the government began to

roll back restrictions and had planned to remove most of them by the end of October, but a

renewed spike infection rates has threatened to reverse the loosening trend. 

Government expenditure decreased in the first half of 2021, mainly reflecting the reduced

need for COVID-19 support measures including subsidies, employment payment programs,

and increased health spending relative to 2020. In the first half of 2021, the budget deficit

narrowed to 4.4% of GDP (from 4.9% of GDP in 2020), while public debt increased to

59.1% of GDP in the second quarter of 2021 (from 58.4% of GDP as of end-2020). For the

first time in recent years, the Irish central bank has cautioned that inflation will increase

this year as energy prices rise and supply bottlenecks persist in some sectors. Meanwhile,

the unemployment rate continues to moderate from a high of 28.2% in April 2020. The

standard unemployment rate was 6.4% in September, while the adjusted rate (which

categorizing those receiving pandemic-related government support as unemployed) was

10.0%.

As noted in the last Report, 

Ireland’s current account data 

is increasingly volatile, 

largely reflecting the high

concentration of foreign

multinational corporations in

Ireland (upwards of 1,500)

and balance of payment

measurement challenges. 

Following data revisions,

Ireland’s current account

balance as a share of GDP was

-2.7% in 2020 (revised down from 4.8%); however, surging net exports pushed Ireland’s

current account to a 15.2% of GDP surplus in the four quarters through June 2021,

reflecting continued weaker services imports, including sharply lower R&D related

intellectual property imports. The United States continues to represent Ireland’s most

significant export market. Ireland ran an $11 billion goods and services trade surplus with

the United States in the four quarters through June 2021, with U.S. goods imports from

Ireland outweighing substantial bilateral U.S. services exports. Treasury assesses that in

2020, following revisions to historical data, Ireland’s external position was weaker than

warranted by economic fundamentals and desirable policies.17

The Irish government’s economic policy measures successfully supported the economy

since the start of the pandemic, and longer-term policies, including significant fiscal

support for the housing sector, will help address structural challenges. Ireland should

continue pandemic-related fiscal support as needed and make efficient use of its EU

Recovery and Resilience Facility funds to catalyze sustained expansion in the country’s

17 Prior to these revisions, Treasury had assessed that in 2020, Ireland’s external position was stronger than

warranted by economic fundamentals and desirable policies, with an estimated current account gap of 2.9%

of GDP.

-60

-40

-20

0

20

40

60

20082009201020112012201320142015201620172018

20192020

2021-Q2

Percent of GDP

Ireland: Current Account Balance

Income Services Goods Current Account Balance

Source: Central Statistics Office Ireland
30

domestic economy alongside robust multinational corporate growth. Diversifying revenue

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

Italy

Italy was first among European countries hit by COVID-19 and in 2020 suffered one of the

worst growth contractions in Europe. To stem the pandemic, the Italian government

imposed lockdowns and other restrictive measures through the fourth quarter of 2020 and

into early 2021, resulting in a real GDP contraction of 8.9% in 2020. Despite facing a third

wave of COVID-19 in early 2021, the Italian economy has begun to recover, with second

quarter growth surpassing expectations at 2.7% quarter-over-quarter (17.3% year-overyear). Though new COVID-19 variants could impact third and fourth quarter growth, the

IMF projects Italian real GDP will grow 5.8% in 2021, spurred by increases in domestic

demand, public investment, and net exports. To tackle the COVID-19 crisis in 2020, Italy

passed four fiscal packages totaling around 6.8% of GDP in direct fiscal stimulus and

authorized around 35% of GDP in loan guarantees.18 This year, Italy has passed two

additional fiscal packages amounting to around 4.5% of GDP. As a result of these measures,

the fiscal deficit reached 9.5% of GDP in 2020 and is projected to increase to 10.2% of GDP

in 2021, increasing Italian government debt—already the second highest in the euro area—

to nearly 156% in 2020 and a projected 155% in 2021. 

Italy’s current account

surplus has been broadly

stable in recent years and

stood at 3.5% of GDP in 2020

(above its 2019 level of

3.2%). For the four quarters

through June 2021, Italy’s

current account surplus was

3.5% of GDP. The United

States is Italy’s third-highest

export destination, and Italy’s

trade surplus with the United

States was $34 billion for the four quarters through June 2021. Treasury assesses that in

2020, Italy’s external position was weaker than warranted by economic fundamentals and

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

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

road to economic recovery. In light of the ongoing risks, Italy should continue to provide

fiscal support to impacted households and firms as necessary, and once immediate support

measures end, should address longer-term structural issues and inequalities. EU-level

fiscal support—including Next Generation EU (NGEU) funding—should help Italy recover

from the pandemic crisis and provide a foundation for achieving stronger future growth. 

As part of the NGEU, Italy will receive around $240 billion in grants and loans, and has

18 As of end-August 2021, Italy has issued around 9.5% of GDP in loan guarantees.

-4

-2

0

2

4

6 2008

200920102011201220132014201520162017

201820192020

2021-Q2

Percent of GDP

Italy: Current Account Balance

Income Services Goods Current Account Balance

Sources: Ufficio Italiano dei Cambi, Banca d'Italia
31

already received its first disbursement of around $31 billion. The crisis has only further

demonstrated the need for Italy to undertake fundamental reforms to tackle deep-rooted

structural rigidities and boost competitiveness. In that vein, Treasury welcomes the Draghi

government’s efforts to reform Italy’s public administration, judicial system, and tax

system to help raise long-term growth.

India

India has battled two outbreaks of COVID-19 since the onset of the global pandemic in

March 2020. India’s large second outbreak in the second quarter of 2021 weighed heavily

on growth, but with cases down significantly from their May peak as of end-October, highfrequency indicators suggest economic activity has been rebounding quickly since early in

the third quarter. The pace of vaccination has picked up since mid-June, and 24% of India’s

population was fully vaccinated as of end-October 2021.

After substantially loosening fiscal policy to respond to the shock from the pandemic, the

Indian government projects a 6.8% of GDP fiscal deficit at the central government level in

FY 2022 (through March 2022), following a 9.3% of GDP deficit in FY 2021. The Reserve

Bank of India (RBI) reduced its policy rate 115 basis points over the first half of 2020, and

it has remained at 4.0% since May 2020.

India’s current account

swung into modest surplus in

2020, a marked departure

from the consistent current

account deficits recorded

since 2004. The recovery in

India’s import demand prior

to the second wave this year

pushed the current account

back narrowly into deficit in

the first half of 2021. 

Resilient remittance inflows

and steady services exports mitigated the size of that deficit. On net, over the four quarters

through June 2021, the current account balance stood at 0.4% of GDP. Treasury assesses

that India’s external position in 2020 was broadly in line with economic fundamentals and

desirable policies.

India’s goods and services trade surplus with the United States was $40 billion over the

four quarters through June 2021, up substantially from its relatively consistent level of

around $30 billion from 2013 to 2019. The higher trade surplus came largely on the back

of higher U.S. imports of Indian goods and steady imports of Indian services, while U.S.

exports of both fell due to India’s weak domestic demand.

-15

-10

-5

0

5

10

2008200920102011201220132014201520162017

201820192020

2021-Q2

Percent of GDP

India: Current Account Balance

Income Services Goods Current Account Balance

Source: Reserve Bank of India
32

India has been exemplary in

publishing its foreign

exchange market

intervention, both monthly

spot purchases and sales and

net forward activity, with a

two-month lag. While the

RBI frequently intervenes in

both directions, the RBI

purchased foreign exchange

on net in 10 of the 12 months

through June 2021, with net

intervention reaching $131 billion, or 4.6% of GDP. The RBI made large purchases between

July 2020 and February 2021, followed by modest sales in March and April this year as

India’s second outbreak took hold and net foreign portfolio flows turned negative.

RBI purchases have led to a rapid rise in total reserves. As of June 2021, foreign exchange

reserves totaled $569 billion, equivalent to 20% of GDP and 223% of short-term external

debt at remaining maturity.19 Reserves stood near 200% of the IMF’s reserve adequacy

metric in December 2020 (prior to continued accumulation in 2021), well-above the top

end of the IMF’s threshold for reserve adequacy. 

Like many Asian emerging

market currencies, the rupee

generally appreciated against

the dollar over the second

half of 2020 and into early

2021, but subsequently faced

depreciation pressures as

COVID-19 outbreaks

intensified across the region. 

On net, the rupee stood 2.7%

weaker against the dollar

over the first ten months of

2021. On a nominal and real effective basis, the rupee strengthened 0.1% and 2.0%,

respectively, over the same period.

The authorities should allow the exchange rate to move flexibly to reflect economic

fundamentals, limit foreign exchange intervention to circumstances of disorderly market

conditions, and refrain from further significant reserve accumulation. As the economic

recovery progresses, the authorities should continue to pursue structural reforms that can

help lift productivity and living standards, while supporting an inclusive and green

recovery.

19 Foreign exchange reserves were equivalent to 555% 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 June 2021.

-20

-10

0

10

20

30

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Billion U.S. Dollars

India: FX Intervention

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

Source: Reserve Bank of India

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
33

Malaysia

The Malaysian economy was hit hard this year due to a rapid resurgence of COVID-19 cases

beginning April 2021. In response to the surge in cases, the authorities reimposed strict

nationwide containment measures, while allowing key economic sectors to continue

operating. The authorities also accelerated their vaccination efforts and by mid-October

had fully vaccinated 90% of all adults. The surge in cases led the authorities to mark down

their 2021 GDP growth forecast to 3-4% in August from 6-7.5% previously forecasted in

March. They project that the recovery will firm in the latter part of this year and into 2022

driven by stronger global demand, as well as increased private consumption and domestic

infrastructure investments.

The authorities have provided substantial policy support to buffer the shock from the

pandemic. They initially programmed about $4 billion (1% of GDP) in COVID-19 support as

part of the 2021 budget, and subsequently announced about $55 billion (15% of GDP) in

additional policy support consisting of approximately 2% of GDP in direct fiscal measures

(largely cash transfers and wage subsidies) and 13% of GDP in indirect support measures

(e.g., savings withdrawal programs, SME financing guarantees, and loan moratorium and

payment reduction measures). After cutting its main policy rate a cumulative 125 basis

points over the first seven months of 2020, Bank Negara Malaysia (BNM) has held its policy

rate steady at 1.75% since July of last year.

Malaysia has made

substantial progress

rebalancing its economy from

a reliance on external

demand toward domestic

demand over the past decade. 

However, Malaysia’s current

account surplus widened to

4.7% of GDP in the four

quarters through June 2021,

its highest 12-month rolling

total since 2014. This reflects

a widening goods trade surplus, as exports recovered faster than imports, on the back of

stronger global economic activity. The uptick in Malaysia’s goods surplus more than offset

its wider services trade deficit as Malaysia’s travel sector contracted, while payments for

trade and technical services increased.

Treasury assesses that in 2020, Malaysia’s external position was stronger than warranted

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

1.3% of GDP. The IMF over the last decade has consistently assessed Malaysia’s external

position to be stronger than the level consistent with medium-term fundamentals and

desired policies.

-10

-5

0

5

10

15

20

25

2008

200920102011201220132014201520162017201820192020

2021-Q2

Percent of GDP

Malaysia: Current Account Balance

Income Services Goods Current Account Balance

Source: Department of Statistics Malaysia
34

Malaysia’s goods and services trade surplus with the United States reached $38 billion in

the four quarters through June 2021, led almost entirely by its increasing bilateral goods

trade surplus which reached $38 billion amid higher U.S. demand for pandemic-related

goods. Malaysia and the United States have strong supply chain linkages, and the bilateral

goods trade is driven by supply integration in key industries such as electrical machinery

parts, nuclear 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 the four quarters through June 2021—and has long run a modest services trade

deficit, led by U.S. exports of tourism, financial services, and intellectual property, though

the services deficit narrowed further over the four quarters through June 2021.

Malaysia does not publish

data on its foreign exchange

intervention; however, the

authorities have conveyed

credibly to Treasury that net

purchases of foreign

exchange over the four

quarters through June 2021

were $3.7 billion or 1.0% of

GDP. Treasury welcomes this

step to increase the

transparency of foreign

exchange intervention. Foreign exchange reserves stood at around $103 billion in October

2021, up 6% from the year prior, and are broadly adequate according to standard

adequacy metrics, including that of the IMF.

Like many regional peer

currencies, the ringgit faced

downward pressure over the

first half of 2021 amid a surge

in COVID-19 cases and the

weakened economic outlook,

compounded in Malaysia by

domestic political

uncertainty. On net, the

ringgit depreciated 2.9%

against the U.S. dollar over

the first ten months of the

year and depreciated 0.4% and 1.4% on a nominal and real effective basis, respectively,

over the same period.

The authorities should continue to provide macroeconomic policy support until a strong,

self-sustaining recovery has taken hold. The pandemic has underscored the importance of

strong social protection systems, particularly for vulnerable populations, and upgrades to

the scale and coverage of Malaysia’s social protection system would support external

-8

-6

-4

-2

0

2

4

6

8 Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

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

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
35

rebalancing while also fostering an inclusive recovery. The authorities should continue to

allow the exchange rate to move to reflect economic fundamentals and limit foreign

exchange intervention to circumstances of disorderly market conditions, while avoiding

excessive accumulation of reserves. 

Singapore

Singapore’s economy has recovered strongly in 2021, particularly in comparison to other

Southeast Asian economies, owing to effective COVID-19 containment measures, a rebound

in external demand, and robust domestic consumption. Although Singapore has

periodically reimposed strict social distancing measures and travel restrictions over the

course of the year in response to increases in COVID-19 cases, with corresponding impacts

on economic activity, it also has already fully vaccinated more than 80% of its population. 

For 2021 as a whole, the authorities, as well as private sector analysts and international

financial institutions, have all upgraded Singapore’s GDP forecast in recent months. As of

October, the IMF forecasts Singapore’s real GDP will grow 6.0% in 2021.

Singapore provided substantial fiscal support in response to the pandemic last year, with

the headline fiscal deficit reaching 14% of GDP in fiscal year 2020 (end-March 2021). The

authorities’ fiscal year 2021 budget calls for the deficit to narrow substantially to around

2% of GDP, while including COVID-related spending worth $8 billion (about 2% of GDP) to

fund public health measures and support for workers and businesses, as well as smallscale, temporary measures in response to an uptick in COVID-19 cases in May which the

authorities plan to fund by reallocating development expenditure from their fiscal year

2021 budget. In March 2020, the Monetary Authority of Singapore (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. After

keeping monetary policy on hold for 18 months, MAS tightened policy in October by raising

slightly the slope of its exchange rate policy band, citing likely above-trend economic

growth and accumulating external and domestic cost pressures.

Singapore’s outsized current

account surplus averaged

17.3% of GDP over the last

decade and ticked up to

18.8% of GDP in the four

quarters through June 2021,

owing to a narrower primary

income deficit. Singapore’s

services trade surplus

remains elevated, reaching

5.2% of GDP in the four

quarters through June 2021. 

Both services imports and exports are still well below pre-COVID-19 levels, with imports

registering a larger contraction.

-20

-10

0

10

20

30

40

2008200920102011201220132014201520162017201820192020

2021-Q2

Percent of GDP

Singapore: Current Account Balance

Income Services Goods Current Account Balance

Sources: Monetary Authority of Singapore, Department of Statistics
36

Treasury assesses that Singapore’s external position was substantially stronger than

warranted by economic fundamentals and desirable policies in 2020, with an estimated

current account gap of 6.0% of GDP. The IMF in recent years has consistently assessed

Singapore’s external position to be substantially stronger than warranted by economic

fundamentals and desirable policies.

Singapore’s bilateral goods and services trade deficit with the United States was $15 billion

in the four quarters through June 2021, driven by its relatively large services trade deficit. 

Singapore has long run a bilateral services deficit with the United States, reaching $14

billion in the four quarters through June 2021. Key U.S. services exports to Singapore

include research and development, intellectual property, and professional and

management services. Singapore’s bilateral goods trade balance returned to a modest $1

billion deficit in the four quarters through June 2021 after registering a surplus in 2020 for

the first time in two decades. 

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

April 2021 and October 2021,

MAS published data on

intervention covering the

second half of 2020 and first half of 2021, respectively, indicating total net purchases of

$74.5 billion in foreign currency in four quarters through June 2021, equivalent to 20.4% of

GDP. Official foreign exchange reserves held by MAS jumped to $409 billion (112% of GDP)

at end-October 2021, increasing 22% nominally year-over-year. In addition to the reserves

held by MAS, Singapore’s government also has access to substantial official foreign assets

managed by two sovereign wealth and investment funds, GIC and Temasek.

Like many regional peer

currencies, the Singapore

dollar faced downward

pressure over the first half of

2021 amid surging COVID-19

cases across Southeast Asia. 

On net, the Singapore dollar

depreciated 2.0% against the

U.S. dollar over the first ten

months of the year.

Meanwhile, the Singapore

-15

-10

-5

0

5

10

15

20

25

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Billion U.S. Dollars

Singapore: Estimated FX Intervention

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

Sources: Monetary Authority of Singapore, U.S. Treasury estimates

80

90

100

110

120

130

80

90

100

110

120

130

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

Indexed to 20Y Avg = 100

Singapore: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
37

dollar appreciated 0.7% on a nominal effective basis and depreciated 0.3% on a real

effective basis over the same period.

The authorities should continue to provide macroeconomic policy support until a strong,

self-sustaining recovery has taken hold. In light of the large and persistent external

imbalances and the public sector’s large net asset position, the authorities should loosen

fiscal policy on a structural basis and reconsider fiscal policy rules that drive a tighter than

warranted fiscal stance across the economic cycle. A sustained expansion in the provision

and coverage of social services would help reduce incentives for private saving and support

stronger consumption. Reductions in the high rates for mandatory contributions 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. Further appreciation of the nominal and the real effective exchange rate

over the medium term, consistent with economic fundamentals, should also play a role in

facilitating external rebalancing.

Thailand

Thailand’s economic recovery has been tepid this year following a 6.1% contraction in

output last year. A rapid acceleration in local transmission of COVID-19 starting in April

2021 and peaking in mid-August prompted the authorities to impose increasingly stringent

restrictions on domestic travel and economic activity. These restrictions have helped to

control the spread of the virus but have weighed on domestic demand, while external

demand remains subdued due to ongoing disruptions to the tourism sector. In response to

these trends, the authorities have accelerated their vaccine procurement timeline, raised

the debt ceiling and authorized an additional 3.2% of GDP in government borrowing (on

top of 6.4% of GDP in emergency borrowing authorized last year), and extended

forbearance for pandemic-affected firms and households struggling to meet debt service

obligations. The Bank of Thailand currently projects the economy to expand by 0.7% this

year, with growth accelerating to 3.9% in 2022 as activity restrictions ease and tourism

recovers.

Thailand recorded a current

account surplus of 0.1% of

GDP in the four quarters

through June 2021,

contrasting sharply with the

elevated current account

surpluses Thailand ran in the

five years before the COVID19 pandemic. This large

decline in the current account

has been due to a rapid

deterioration in the services

-10

-5

0

5

10

15

2008200920102011201220132014201520162017201820192020

2021-Q2

Percent of GDP

Thailand: Current Account Balance

Income Services Goods Current Account Balance

Sources: Bank of Thailand, National Economic & Social Development Board
38

balance, which swung to a deficit of 6.0% of GDP during the four quarters through June

2021 after averaging a surplus of 4.6% of GDP between 2015 and 2019. The steep drop in

tourism receipts has been the primary contributor to the swing in the services balance, but

rising payments for freight transportation linked to a sharp increase in global freight costs

has also contributed. Resilient merchandise exports and sluggish imports caused

Thailand’s goods trade surplus to expand to 7.7% of GDP during the four quarters through

June 2021 from 6.2% of GDP over the prior four quarters, partially offsetting the

deterioration of the services balance. 

Thailand’s bilateral goods and services trade surplus with the United States widened to $30

billion over the four quarters through June 2021, an increase of $8 billion over the

preceding four quarters. Thailand’s merchandise exports to the United States grew by 22%

during this period, led by the sustained growth of electronic and electric equipment

exports. During the same period, goods imports from the United States declined by 9%,

primarily due to lower Thai imports of U.S. crude oil.

Thailand intervenes

frequently in foreign

exchange markets. 

Intervention activity was

skewed heavily toward

purchases of foreign currency

between 2016 and 2020, a

period that generally

coincided with appreciation

pressures on the baht. In the

first half of 2021, as the baht

faced sustained depreciation

pressure, Treasury estimates that Thailand made net sales of foreign currency. Thailand

does not publish data on its foreign exchange intervention; however, the Thai authorities

have credibly conveyed to Treasury that net purchases of foreign exchange were 0.08% of

GDP over the four quarters through June 2021. That figure is equivalent to about $0.4

billion.

The baht depreciated by

10.0% against the dollar over

the first ten months of the

2021, the largest depreciation

of any major Asian currency

during this period. Over the

same period, the baht

depreciated by 7.9% and

8.4% on a nominal effective

and real effective basis,

respectively. The baht’s

depreciation trend occurred

-10

-5

0

5

10

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Billion U.S. Dollars

Thailand: Estimated FX Intervention

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

Sources: Bank of Thailand, U.S. Treasury estimates

90

100

110

120

130

90

100

110

120

130

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

Indexed to 20Y Avg = 100

Thailand: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
39

amid the large swing in Thailand’s current account, a record surge in resident portfolio

capital outflows (facilitated by recent easing of restrictions on resident investment

abroad), and a shift in investor sentiment tied to the substantial increase in Thailand’s

COVID-19 caseload in 2021. 

Treasury assesses that Thailand’s external position in 2020 was substantially stronger than

the level consistent with medium-term economic fundamentals and desirable policies with

an estimated current account gap of 4.6% of GDP. Although the exact pace of Thailand’s

tourism recovery remains highly uncertain, Treasury’s estimate of the current account gap

assumes that the shocks to Thailand’s balance of payments related to the COVID-19

pandemic are largely transitory in nature and will dissipate over the medium

term. Treasury will continue to monitor any substantive changes to this outlook.

The authorities should sustain macroeconomic policy support, including fiscal stimulus,

until a strong, self-sustaining recovery takes hold, while aiming to raise domestic

investment and productivity over the medium term. Thailand should take steps to durably

strengthen the social protection system, which may help mitigate incentives for excessive

precautionary saving. Thailand should also allow the exchange rate to move flexibly in line

with economic fundamentals and avoid sustained, one-sided intervention. The authorities

also should focus any future changes to capital flow restrictions on macroprudential and

efficiency objectives and avoid using changes to these policies as tools to employ in

response to future periods of baht appreciation in line with economic fundamentals. 

Mexico

Mexico fell into recession well in advance of the COVID-19 pandemic, with the economy

contracting 0.1% in 2019. The pandemic hit Mexico hard and an austere fiscal response

contributed to Mexico’s deep economic contraction, by 8.3% in 2020, and rising poverty. 

The IMF estimates that Mexico’s fiscal support package totaled less than 1% of GDP, the

smallest among the G20 and regional peers, despite modest public debt (61% of GDP in

2020) that is the median among emerging market G20 members. Sticky core inflation that

was at the upper end of the Bank of Mexico’s (Banxico’s) inflation target band of 3±1%

during Mexico’s pre-pandemic recession has accelerated to 5.2% as of October 2021. The

resulting monetary tightening, together with a resurgent COVID-19 outbreak in summer

2021, will further weigh on domestic demand.
40

The Mexican economy’s

reliance on external demand

has expanded Mexico’s

current account surplus to

historic levels. Relatively

strong external demand from

the United States cushioned

Mexico’s exports, while fiscal

austerity in Mexico failed to

support domestic demand,

resulting in import

compression. Mexico’s goods

and services trade surplus was $20 billion (1.7% of GDP) in the four quarters through June

2021; notably, its bilateral goods and services surplus with the United States over the

period reached $116 billion, the second largest after China and up 19% from end-2019. In

addition to the elevated goods surplus, a record remittance inflow ($45 billion or 3.8% of

GDP in the four quarters through June 2021) has driven up the current account surplus,

which reached 2.9% of GDP over the same period. Prior to 2020, Mexico had not had a

current account surplus since 1987. 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, rising

informality in labor markets and a deteriorating investment climate will likely weigh on

domestic sources of growth, keeping the current account above its long-term average. 

Treasury assesses that in 2020, Mexico’s external position was stronger than warranted by

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

3.0% of GDP.

The Mexican peso is a freely

traded, global currency that

responds flexibly to shifts in

global sentiment. The real

effective peso has largely

tracked Mexico’s terms of

trade over the past 15 years. 

After depreciating

significantly early in the

COVID-19 pandemic, the peso

appreciated 16% against the

dollar during the second half

of 2020 as global risk aversion subsided. Over the first ten months of 2021, the peso

depreciated 3.2% against the dollar and has depreciated by 1.4% and 0.4% on a nominal

effective and real effective basis, respectively. 

Mexico has intervened in foreign exchange markets only minimally since 2017. Almost all

of its interventions over the past decade have been foreign exchange sales that have

supported (strengthened) the currency. Mexico is very open to capital flows, has refrained

-3

-2

-1

0

1

2

3

4

5 2008

200920102011201220132014201520162017201820192020

2021-Q2

Percent of GDP

Mexico: Current Account Balance

Income Services Goods Current Account Balance

Sources: Banxico, INEGI, Haver

50

60

70

80

90

100

110

120

130

140

50

60

70

80

90

100

110

120

130

140

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

Indexed to 20Y Avg = 100

Mexico: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
41

from capital flow management measures, and has a highly liquid currency, allowing the

peso to act as an important shock absorber for Mexico. As of June 2021, Mexico has $185

billion in foreign exchange reserves, together with $133 billion in available swap and credit

lines,20 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-August 2021, has repaid $6.5

billion. In its latest External Sector Report, the IMF assessed that Mexico’s foreign

exchange reserves levels are adequate across a range of metrics, with reserves reaching

128% of the IMF’s adequacy metric as of end-2020.

Mexico is timely in publishing

its foreign exchange market

intervention, disclosing

monthly purchases and sales

with about a one-week lag

and providing intervention

data from 1996 onwards. 

Banxico typically conducts its

foreign exchange

transactions with the private

sector under rules-based,

transparent programs to

counter volatility or accumulate reserves.21 The last time Banxico intervened in the spot

market was in January 2017, selling $2 billion on the month, and the last intervention in

forwards markets was in March 2020, selling $2 billion (non-deliverable), at the height of

financial market pressures at the outset of the pandemic. 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.

The IMF expects a recovery of 6.2% in real GDP in 2021, which would leave the economy

close to 3% below its pre-pandemic peak. Under-investment by the private sector

threatens to hamper recovery and reduce long-term growth potential. Mexico’s costly

support to increase the market dominance of loss-making state energy firms drains public

resources for essential spending and discourages 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. 

20 These comprise a $63 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.

21 See “Reserves Management and FX Intervention in Mexico” by Banxico Deputy Governor Javier Guzmán

Calafell, available at https://www.banxico.org.mx/publicaciones-y-prensa/discursos/%7BEA88E47F-8EC7-

14F7-9B19-B4649E0EE3E6%7D.pdf.

-4

-3

-2

-1

0

1

2 Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Billion U.S. Dollars

Net Spot Market Intervention

Change in Nondeliverable Forward Book

Sources: Banxico, U.S. Treasury estimates 

Mexico: FX Intervention
42

In-Depth Analysis

Switzerland

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

FX Reports, and, in early 2021, commenced enhanced bilateral engagement with

Switzerland in accordance with the 2015 Act.22 An in-depth analysis of recent economic

developments is provided below, along with an update on Treasury’s ongoing enhanced

bilateral engagement with the Swiss authorities.

While Switzerland was hit early and hard by the COVID-19 pandemic, economic growth

began to improve in the second half of 2020. During the third quarter of 2020, GDP grew

the most since 1980, rising 7.2% on a quarterly basis, driven by an increase in consumption

and investment in equipment as activity rebounded from COVID-19 related shutdowns. A

slow vaccination roll-out led to renewed restrictions to combat COVID-19 at the start of

2021 and a 0.5% quarter-over-quarter contraction in real GDP activity in the first quarter. 

A relaxation of virus restrictions and strong manufacturing and service sector activity led

to a resumption of growth in the second quarter of 2021, with real GDP rising 1.8%

quarter-over-quarter. 

Reflecting reduced base effects as a result of a less severe economic downturn in 2020 than

originally estimated and a slow pace of recovery in international tourism, the Swiss State

Secretariat for Economic Affairs (SECO) downgraded its forecast for real GDP growth in

2021 to 3.4%, below the IMF’s forecast of 3.7%. SECO now expects the economy to climb

above pre-crisis levels in the second half of 2021. However, uncertainty over the outlook

remains high given the continued spread of COVID-19 variants.

Government employment assistance has helped to limit unemployment and bolster

consumer spending, with the unemployment rate falling to 2.5% in October 2021. Since

the beginning of the COVID-19 crisis, the IMF estimates that Switzerland’s COVID-19 fiscal

response amounted to up to 10% of GDP, including both direct and indirect measures,

although less than half of the funds made available have been used thus far. Direct fiscal

measures include partial unemployment compensation and aid to affected firms. These

were implemented in conjunction with larger indirect fiscal measures in the form of loan

guarantees to small and medium-sized enterprises and start-ups, temporary deferral of

social security payments for affected companies, and an extension of tax and other

payments owed to the federal government. However, the take-up of bridge loans under the

federal guarantee program, as well as assistance to the self-employed, has been lower than

budgeted.

22 Report to Congress: Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United

States, U.S. Department of the Treasury, Office of International Affairs, pp. 48-55 (Dec. 2020), available at

https://home.treasury.gov/system/files/206/December-2020-FX-Report-FINAL.pdf, and 

Report to Congress: Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United

States, U.S. Department of the Treasury, Office of International Affairs, pp. 50-53 (Apr. 2021), available at

https://home.treasury.gov/system/files/206/April_2021_FX_Report_FINAL.pdf.
43

Robust global risk appetite

that diminished the safehaven capital demand for

Switzerland’s assets this year

likely drove the performance

of the franc versus the dollar

and euro. Over the first ten

months of 2021, the Swiss

franc depreciated 3.5%

against the dollar and

appreciated 2.1% against the

euro. On a nominal effective

and real effective basis, the Swiss franc depreciated by 0.8% and 3.1%, respectively, over

the same period.

Switzerland has for many

years run large current

account surpluses, but the

surplus declined significantly

to 1.2% of GDP in 2020

(revised down from 3.8% of

GDP in September of this

year) due to lower goods and

services surpluses and a

larger decline in investment

income receipts relative to

expenses as a result of the

better performance of the Swiss economy versus the rest of the world. In the four quarters

through June 2021, the current account surplus rebounded to 2.95% of GDP, and the IMF

projected a 7.2% of GDP current account surplus for 2021 before the publication of the

September balance of payments revisions. Foreign trade has bolstered the current account,

with an increase in foreign demand for watches and precious metals, particularly from

China. Switzerland’s historically tight fiscal policy has also contributed to its large and

persistent current account surpluses. Even with relatively large announced fiscal stimulus,

Switzerland’s general government deficit only reached 2.8% in 2020 (significantly smaller

than in neighboring countries) and the IMF expects it to narrow to 2.1% in 2021. Failure of

the June 13 referendum on the CO2 law, which would have helped Switzerland to cut CO2

emissions, also limits the potential for an increase in fiscal spending to meet climate targets

in the near term. 

Other structural factors also play a role in Switzerland’s historically large current account

surpluses, including high per capita income; a large share of prime-aged savers and an

aging population; a high household savings rate, which is almost double the advanced

economy average per OECD data; relatively limited domestic investment opportunities;

measurement issues; and a large net international investment position (NIIP), for which

returns further raise the income balance. Even after accounting for the frequently large

70

80

90

100

110

120

130

140

70

80

90

100

110

120

130

140

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

2008200920102011201220132014201520162017

201820192020

2021-Q2

Percent of GDP

Switzerland: Current Account Balance

Income Services Goods Current Account Balance

Sources: Swiss National Bank, Haver
44

downward revisions due to changes in investment income and services trade, Switzerland’s

current account surplus, as reported by the Swiss National Bank (SNB), has averaged more

than 7% of GDP since 2010. 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.

The significant downward revisions to Swiss data, particularly the September 2021

revisions to services trade data, present challenges in assessing consistently Switzerland’s

external balance. Taking into account these revised data, Treasury assesses that in 2020,

Switzerland’s external position was weaker than warranted by economic fundamentals and

desirable policies, with an estimated current account gap of -1.3%. However, prior to these

revisions, Treasury assessed that in 2020 Switzerland’s external position was stronger

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

current account gap of 1.2% of GDP. These differing assessments suggest a divergence

between the revised current account data and Switzerland’s economic fundamentals and

its current macroeconomic policy stance, which would imply larger current account

surpluses. Similar divergences have been noted by the IMF. The IMF’s external sector

assessment of Switzerland for 2020 — which was published prior to the September 2021

data revision — noted that the external position in 2020 was broadly in line with the level

implied by medium-term fundamentals and desirable policies. This was based on a holistic

assessment that took into account both model-based estimates, which would have

suggested a weaker position than implied by fundamentals, and also the continued strength

of Switzerland’s external balance sheet and its macroeconomic policy mix. IMF staff also

noted that the change from the previous assessment, in which the external position was

judged to be moderately stronger, is subject to high uncertainty related to recent large

downward statistical revisions to historical current account balances. IMF staff stress that

it will be necessary to distinguish transitory and COVID-19–related effects from structural

impacts, with data and time necessary to assess the durability of the downward shift in the

external accounts.

In the four quarters ending in June 2021, Switzerland’s bilateral goods and services trade

surplus with the United States stood at $25 billion. During the same period, Switzerland’s

goods trade surplus with the United States reached $43 billion, versus $49 billion over the

same period one year ago and $57 billion in 2020. Switzerland maintains a large goods

trade surplus with the United States, but this traditionally has been mirrored largely by a

services trade deficit. 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. However, over the four quarters through June 2021, Swiss

gold exports to the United States stood at $4.7 billion, down from $12.8 billion recorded

over the same period in the previous year. Over the four quarters through June 2021,

Switzerland’s bilateral services trade deficit with the United States stood at $18 billion,

down slightly from $20 billion over the same period in 2020. In most recent years, the

United States’ trade deficit with Switzerland was closer to balance when including services

data, except for 2020. 
45

The SNB has maintained negative interest rates since the start of the COVID-19 pandemic

to limit franc appreciation and combat deflationary risks. 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 massively increasing

its intervention in foreign exchange markets in the spring of 2020 to stem franc

appreciation and deflationary pressure. 

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). 

With the exception of May

2021, the SNB’s net foreign

exchange purchases have

broadly moderated since the

onset of the pandemic in

early 2020. Net foreign exchange purchases in 2020 amounted to $115 billion, or 15.3% of

GDP. Based on the SNB’s published intervention figures, SNB intervention amounted to

$28 billion, or 3.5% of GDP, in the four quarters through June 2021. The SNB’s balance

sheet and foreign exchange reserves have increased significantly since the global financial

crisis as a result of the SNB’s monetary policy actions. Between 2007 and 2020, the SNB’s

balance sheet expanded significantly 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 June 2021, Switzerland’s foreign currency reserves

stood at $1 trillion, up from $896 billion at end-June 2020. More recently, reserves covered

82% of short-term debt and 129% of GDP as of end-June 2021.

In its September 23, 2021 monetary policy assessment, the SNB announced that it

maintained its main policy rate at -0.75% to foster price stability and support Swiss

economic recovery. Switzerland’s inflation declined to -0.7% in 2020 (making 2020 the

sixth year since 2009 that Switzerland experienced deflation), but the SNB’s inflation

outlook has improved due to a weaker franc, global inflationary pressures, and stronger

domestic conditions. The SNB projects inflation to reach 0.5% in 2021 and 0.7% in 2022,

remaining well below its 2% ceiling.

Since early 2021, Treasury has been conducting 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 policy options to address

the underlying causes of Switzerland’s external imbalances. 

-5

0

5

10

15

20

25

30

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Billion U.S. Dollars

Sources: Swiss National Bank, U.S. Treasury estimates 

Switzerland: Estimated FX Intervention
46

Enhanced Analysis Under the 2015 Act

Taiwan

Treasury conducted enhanced analysis of Taiwan in its April 2021 FX Report.23 A summary

of recent economic developments is provided below, along with an update on Treasury’s

ongoing enhanced bilateral engagement with the Taiwanese authorities.

Taiwan has weathered the COVID-19 pandemic relatively well, avoiding severe lockdowns

for most of 2020 and early 2021, though an outbreak starting in mid-May 2021 led to

tighter restrictions. The authorities have since brought the outbreak under control, partly

through a robust vaccination campaign, and health officials have been gradually easing

restrictions since late-July. After increasing 3.2% year-over-year in 2020, real GDP grew

9.4% year-over-year in the first quarter before moderating 7.4% year-over-year in the

second quarter as the COVID-19 outbreak weakened activity during the May-August

period. The authorities responded to the slowdown by passing a third special budget for

pandemic relief ($9.3 billion, or roughly 1.3% of GDP) in July 2021, bringing cumulative

pandemic related fiscal measures to $53.8 billion (7.4% of GDP). 

Taiwan’s current account

surplus was 15.2% of GDP

($111.2 billion) in the four

quarters ending in June 2021. 

Taiwan’s surplus over this

period was largely driven by

Taiwan’s $41.2 billion goods

trade surplus (11.1% of GDP),

with exports surging in the

second quarter of 2021. 

Global supply chain shifts and

the ongoing global

semiconductor shortage continue to boost Taiwan’s semiconductor industry, with

semiconductor exports increasing 30% year-over-year in June. Growth in non-tech exports

was also strong and broad-based in the first half of 2021. Meanwhile, overall goods

imports increased to $168 billion in the first half of the year (45% of GDP in the first half of

2021) as imports rose on rising prices and increased domestic capital spending by

Taiwanese firms. Treasury assesses that in 2020, Taiwan’s external position was

substantially stronger than warranted by economic fundamentals and desirable policies,

with an estimated current account gap of 7.0%. 

Taiwan’s services deficit had gradually narrowed from $10.8 billion (2.0% of GDP) in 2015

to $5.1 billion (0.8% of GDP) in 2019. However, the COVID-19 pandemic led to the collapse

23 Report to Congress: Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United

States, U.S. Department of the Treasury, Office of International Affairs, pp. 40-46 (April 2021), available at 

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

-5

0

5

10

15

20

2008200920102011201220132014201520162017

201820192020

2021-Q2

Percent of GDP

Taiwan: Current Account Balance

Income Services Goods Current Account Balance

Sources: Taiwan central bank, Haver
47

of outbound tourism, and the services balance shifted to a surplus of $3.8 billion (0.6% of

GDP) in 2020. Over the first half of 2021, the services surplus widened to $5.3 billion

(1.4% of GDP) as a modest recovery in services exports (particularly in freight

transportation and information technology services) outstripped continued weak services

imports.

Strong U.S. demand for Taiwan’s semiconductors and other electronic goods exports also

led to a record bilateral goods surplus of $34 billion. Taiwan runs a small bilateral services

deficit of $2 billion with the United States, largely driven by charges for the use of

intellectual property.

Taiwan’s exchange rate came

under sustained appreciation

pressure for most of the first

half of 2021, as Taiwan’s

robust export growth and

unexpectedly strong

economic growth attracted

capital inflows, and as

Taiwan’s central bank scaled

back its foreign exchange

intervention in February. 

Over the first ten months of

the year, the New Taiwan Dollar (TWD) appreciated 0.9% on a bilateral basis against the

U.S. dollar, while appreciating by 3.2% and 3.1% on a nominal effective and real effective

basis, respectively. 

The stated policy of the central bank is to maintain a “managed float” exchange rate policy,

in principle determined by market forces but with flexibility to maintain an orderly foreign

exchange market. After conducting total net foreign exchange purchases of $39.1 billion

(5.8% of GDP) in 2020, the central bank has significantly scaled back its intervention thus

far in 2021. Over the four quarters through June 2021, the central bank publicly disclosed

net foreign exchange purchases of $43.9 billion (6.0% of GDP), with $8.7 billion in net

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
48

foreign exchange purchases

taking place in the first half of

2021. Taiwan publishes its

data on foreign exchange

intervention on a semiannual basis, with a threemonth lag. 

In April 2021, Treasury

commenced enhanced

bilateral engagement with

Taiwan in accordance with

the 2015 Act. As part of this process, and consistent with the 2015 Act, Treasury is

working with Taiwan’s authorities to develop a plan with specific actions to address the

underlying causes of Taiwan’s currency undervaluation and excessive external surpluses. 

Vietnam

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

Reports and, in early 2021, commenced enhanced bilateral engagement with Vietnam in

accordance with the 2015 Act.24 As a result of discussions through the enhanced

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

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

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

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

Throughout 2020 and the first quarter of 2021, Vietnam had managed to keep its COVID-19

caseload under control and did not experience the same severe economic disruptions as

many peers. Vietnam’s GDP growth was 2.9% in 2020, one of the few countries to see a

positive growth rate amid the global pandemic. Between April and October 2021, however,

the COVID-19 caseload surged. The authorities responded with strict containment

measures and movement restrictions, which disrupted production in Vietnam’s southern

manufacturing hubs, intensifying concerns about global supply chains. The region is an

increasingly important node in global supply chains for electrical and electronics

components, machinery, textiles, apparel, and furniture. The IMF projects real GDP will

grow by 3.8% in 2021 despite these headwinds, though recovery will largely depend on the

pace of vaccinations and success in containing transmission of the Delta variant.

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, pp. 48-55 (Dec. 2020), available at 

https://home.treasury.gov/system/files/206/December-2020-FX-Report-FINAL.pdf, and Report to Congress:

Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, U.S. Department

of the Treasury, Office of International Affairs, pp. 47-50 (Apr. 2021), available at

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

 

-2

0

2

4

6

8

10

12

14

16

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Billion U.S. Dollars

Taiwan: Estimated FX Intervention

Sources: Taiwan central bank, U.S. Treasury estimates
49

The Vietnamese government has provided support to cushion the pandemic’s economic

impact over the past two years. Following an accommodative fiscal policy in 2020 when

the authorities introduced a fiscal and credit support package of about 4% of GDP, the

government’s original 2021 budget entailed a roughly neutral fiscal impulse position. 

However, as the global pandemic continued to weigh on various sectors, particularly the

tourism industry, and Vietnam subsequently facing a more significant domestic COVID-19

outbreak, the authorities adopted additional supplemental fiscal assistance packages in

April and July that totaled more than 2% of GDP. The SBV has supported economic activity

by holding steady its benchmark policy rate at 4% since October 2020 and continuing to

grant forbearance through December 2021 on loans that were negatively impacted by the

pandemic. 

The hit to manufacturing and

exports from the pandemic

has been increasingly

apparent in Vietnam’s

balance of payments this

year. In the four quarters

through June 2021, Vietnam

ran a current account surplus

of 1.6% of GDP, a substantial

narrowing from the 4.0% of

GDP surplus that Vietnam ran

in the four quarters through

June 2020. The primary driver of the decline in the current account is the moderation of

Vietnam’s goods trade surplus during the first two quarters of 2021. As noted previously,

many exporters began to face interruptions to manufacturing operations due to COVID-19

cases in the first half of 2021, while domestic demand began to recover. During the first

half of 2021, the rapid increase in imports (36% year-over-year) outpaced the expansion of

exports (29% year-over-year) primarily reflecting sharp increase in import prices. 

Vietnam ran a trade deficit for five straight months from April through August 2021.

Vietnam’s services trade deficit has generally narrowed in recent years. The pandemic,

however, dramatically reversed this trend, leading to a collapse in tourism and sharp

reduction in Vietnam’s services exports. The overall services trade deficit expanded to $16

billion in the four quarters through June 2021, a sharp increase from the $5 billion services

trade deficit in the previous four quarters. The primary and secondary income balance

remained relatively stable compared to previous years, and remittance inflows proved

resilient amid the pandemic.

Notwithstanding the recent narrowing of the current account surplus, Treasury assesses

that in 2020 Vietnam’s external position was stronger than warranted by economic

fundamentals and desirable policies, with an estimated current account gap of 2.1% of GDP. 

Vietnam’s bilateral trade with the United States has grown significantly in recent years. 

This expansion has been primarily propelled by goods trade. In the four quarters through

-15

-10

-5

0

5

10

15

2008200920102011201220132014201520162017201820192020

2021-Q2

Percent of GDP

Vietnam: Current Account Balance

Income Services Goods Current Account Balance

Sources: IMF BOP statistics, State Bank of Vietnam
50

June 2021, the bilateral goods trade surplus reached $84 billion, compared to $58 billion in

the four quarters through June 2020. Vietnam is now the third largest net exporter of

goods to the United States. The pandemic has accelerated the shift of exports to high-tech

products in general, and U.S. demand has been particularly strong for computers,

electronics, phones, and machinery, where imports from Vietnam grew by 36% in 2020

and 59% year-over-year in the first six months of 2021. Vietnam has limited bilateral

services trade with the United States and has long run a small bilateral services trade

deficit. In the four quarters through June 2021, that services deficit was $1.6 billion.

Vietnam does not publish

data on its foreign exchange

intervention. The authorities

have conveyed credibly to

Treasury that net purchases

of foreign exchange in the

four quarters through June

2021 were $18.1 billion, or

about 5.1% of GDP. Treasury

estimates show that the SBV

steadily purchased foreign

exchange in the second half of

2020, while purchases in 2021 were concentrated at the beginning of the year in January

and February and have largely tapered off since then. Headline foreign exchange reserves

increased about $16 billion over the 12 months through June 2021 to reach $100 billion.

The IMF has assessed that foreign exchange reserves at the end of 2020 were within the

IMF’s range for reserve adequacy.

Since January 2016, the SBV’s

exchange rate policy has been

to permit the dong to float +/-

3% against the U.S. dollar

relative to the central

reference rate of the trading

band. The central reference

rate is reset daily based on

the movements of a basket of

currencies, among other

factors. While the dong

bilateral spot rate against the

dollar was relatively stable throughout the second half of 2020, it has appreciated about

2.1% against the dollar in 2021 as of mid-November. On net, the dong appreciated 4.6%

and 3.3% year-to-date through the first ten months of the year on a nominal effective basis

and real effective basis, respectively.

-2

-1

0

1

2

3

4

5

6 Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Billion U.S. Dollars

Vietnam: Estimated FX Intervention

Sources: State Bank of Vietnam, U.S. Treasury estimates

70

80

90

100

110

120

130

70

80

90

100

110

120

130

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

Indexed to 20Y Avg = 100

Vietnam: Exchange Rates

Bilateral vs. USD REER NEER

Sources: Vietcombank, JP Morgan
51

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

evaluated under the 2015 Act), but also currency developments, the design of exchange

rate regimes and exchange rate practices, foreign exchange reserve coverage, capital

controls, monetary policy, and trade policy actions, as well as foreign exchange activities by

quasi-official entities that may be undertaken on behalf of official entities, among other

factors.

The 2015 Act requires the Secretary of the Treasury to provide semiannual reports on the

macroeconomic and foreign exchange rate policies of the major trading partners of the

United States. Section 701 of the 2015 Act requires that Treasury undertake an enhanced

analysis of 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 June 2021, unless otherwise noted) are

provided in Table 1 (p. 17) and Table 2 (p. 53). 

As noted earlier, Treasury reviews developments in the 20 largest trading partners of the

United States, along with other trading partners that remain on the Monitoring List over

the period of review. These economies accounted for more than 80% of U.S. trade in goods

and services over the four quarters through June 2021. This includes all U.S. trading

partners whose bilateral goods and services surplus with the United States exceeded $15

billion over the same period. 

The results of Treasury’s latest assessment pursuant to Section 701 of the 2015 Act are

discussed below.
52

Criterion (1) – Significant bilateral trade surplus with the United States:

Column 3 in Table 2 provides the bilateral goods and services trade balances for the United

States’ 20 largest trading partners for the four quarters through June 2021.

25 China has the

largest trade surplus with the United States by far, after which the sizes of the bilateral

trade surpluses decline notably. Treasury assesses that economies with a bilateral goods

and services surplus of at least $15 billion have a “significant” surplus. Highlighted in red

in column 3 are the 13 major trading partners that have a bilateral surplus that met this

threshold for the four quarters through June 2021. Table 3 provides additional contextual

information on total and bilateral trade, including individual goods and services trade

balances, with these trading partners. Because the Report now incorporates services trade,

Table 3, which provides disaggregated goods and services trade data, will be essential for

comparison with past Reports that focus on goods trade.

25 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.
53

Net Purchases

(USD Bil., 

Trailing 4Q)

(1b)

Net Purchases

8 of 12 

Months†

(1c)

Balance

(% of GDP, 

Trailing 4Q)

(2a)

3 Year Change 

in Balance

(% of GDP) 

(2b)

Balance

(USD Bil., 

Trailing 4Q)

(2c)

Goods and Services 

Surplus with United 

States (USD Bil., 

Trailing 4Q) 

(3)

China 0 — 1.7 ** 6 — 278 N o 2.1 1.5 340 1.7 318

Canada 0.0 0 N o -0.4 2.4 - 7 -4.0 5

Mexico 0.0 0 N o 2.9 4.7 35 3.0 116

Japan 0.0 0 N o 3.5 -0.6 178 1.4 57

Germany 0.0 0 N o 7.5 -0.9 308 3.5 66

United Kingdom 0.0 0 N o -2.3 1.3 -70 -2.5 -17

Korea 1.0 17 Yes 5.7 1.2 101 -2.7 19

Ireland 0.0 0 N o 15.2 0.3 72 -3.9 11

Switzerland * 3.5 28 Yes 3.0 -3.9 23 -1.3 25

India 4.3 123 Yes 0.4 2.2 11 0.5 40

Taiwan 6.0 44 Yes 15.3 1.3 111 7.0 32

Netherlands 0.0 0 N o 8.9 -1.7 88 0.5 -25

Vietnam 5.1 *** 18 Yes 1.6 -0.7 6 2.1 82

France 0.0 0 N o -1.2 -0.3 -34 -1.3 20

Singapore 20.4 75 Yes 18.8 2.9 69 6.0 -15

Italy 0.0 0 N o 4.1 1.5 84 -1.2 34

Brazil -1.5 -22 N o -1.3 0.6 -19 -0.4 -22

Malaysia 1.0 *** 4 Yes 4.7 1.8 17 1.3 38

Belgium 0.0 0 N o 1.8 1.3 10 -4.9 - 8

Australia 0.3 5 N o 3.3 6.1 51 1.0 -22

Thailand 0.1 *** 0 N o 0.1 -8.5 0 4.6 30

Memo: Euro Area 0.0 0 N o 2.9 -0.8 401 -0.1 118

Note: Current account balance measured using BOP data, recorded in U.S. dollars, from national authorities.

Sources: Haver Analytics; National Authorities; U.S. Census Bureau; Bureau of Economic Analysis; and U.S. Department of the Treasury Staff Estimates.

Table 2. Major Foreign Trading Partners Evaluation Criteria

Current Account Bilateral Trade

2020 GERAF 

CA Gap

(% of GDP)

(2d)

† In assessing the persistence of intervention, Treasury will consider an economy that is judged to have purchased foreign exchange on net for 8 of the 12 months to have met 

the threshold.

*** Authorities do not publish FX intervention. Authorities have conveyed bilaterally to Treasury the size of net FX purchases during the four quarters ending June 2021.

Net Purchases

(% of GDP, Trailing 

4Q)

(1a)

FX Intervention

* Switzerland's current account surplus during the four quarters ending June 2021 totaled 2.95% of GDP.

** 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.
54

Goods and 

Services

(1a)

Goods

(1b)

Services

(1c)

Goods and 

Services

(2a)

Goods

(2b)

Services

(2c)

Goods and 

Services

(3a)

Goods

(3b)

Services

(3c)

Goods and 

Services

(4a)

Goods

(4b)

Services

(4c)

China 684 630 55 318 338 -19 4.1 3.8 0.3 1.9 2.0 -0.1

Canada 678 598 80 5 27 -22 36.8 32.5 4.3 0.3 1.5 -1.2

Mexico 659 615 45 116 121 - 5 55.4 51.6 3.8 9.7 10.1 -0.4

Japan 263 197 66 57 62 - 5 5.1 3.8 1.3 1.1 1.2 -0.1

Germany 249 188 61 66 64 2 6.1 4.6 1.5 1.6 1.6 0.0

United Kingdom 227 112 115 -17 - 7 -11 7.5 3.7 3.8 -0.6 -0.2 -0.4

Korea 172 143 29 19 26 - 8 9.8 8.1 1.6 1.1 1.5 -0.4

Ireland 164 79 85 11 57 -46 34.5 16.6 18.0 2.3 12.0 -9.7

Switzerland 159 88 71 25 43 -18 20.0 11.1 9.0 3.1 5.4 -2.3

India 138 95 43 40 29 11 4.8 3.3 1.5 1.4 1.0 0.4

Taiwan 117 101 17 32 34 - 2 16.1 13.9 2.3 4.5 4.7 -0.3

Netherlands 111 77 34 -25 -19 - 5 11.3 7.8 3.4 -2.5 -2.0 -0.5

Vietnam 107 105 2 82 84 - 2 30.4 29.7 0.7 23.2 23.7 -0.4

France 104 74 29 20 21 - 1 3.6 2.6 1.0 0.7 0.7 0.0

Singapore 96 60 37 -15 - 1 -14 26.3 16.3 10.0 -4.1 -0.2 -3.9

Italy 86 77 10 34 35 - 1 4.2 3.7 0.5 1.6 1.7 -0.1

Brazil 82 64 18 -22 -13 - 9 5.5 4.2 1.2 -1.4 -0.8 -0.6

Malaysia 69 65 4 38 38 0 19.1 18.1 1.0 10.5 10.6 -0.1

Belgium 60 52 9 - 8 - 9 0 10.5 9.0 1.5 -1.5 -1.5 0.0

Australia 58 38 20 -22 -12 -10 3.8 2.5 1.3 -1.4 -0.8 -0.6

Thailand 57 54 3 30 31 - 1 11.1 10.5 0.6 5.7 6.0 -0.3

Memo: Euro Area 885 627 258 118 177 -59 6.3 4.5 1.8 0.8 1.3 -0.4

Table 3. Major Foreign Trading Partners - Expanded Trade Data

Total Trade Trade Surplus with United States

USD Bil., Trailing 4Q

Source: U.S. Census Bureau, and Bureau of Economic Analysis.

% of GDP, Trailing 4Q

Total Trade Trade Surplus with United States
55

Criterion (2) – Material current account surplus:

Treasury assesses current account surpluses of at least 3% of GDP or a surplus for which

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

be “material” for the purposes of enhanced analysis. Highlighted in red in column 2a and

2d of Table 2 are the 14 economies that met these thresholds over the four quarters

through June 2021. Box 2 below summarizes how Treasury estimates current account

gaps. In the aggregate, these 14 economies accounted for roughly 75% of the value of

global current account surpluses over the four quarters through June 2021. Column 2b

shows the change in the current account surplus as a share of GDP over the last three years,

although this is not a criterion for enhanced analysis. 

In the case of estimating current account gaps in 2020, Treasury applied one-off,

multilaterally consistent adjustments to its estimates to assess more accurately an

economy’s underlying current account given the uneven impacts of the pandemic on

external balances. These adjustments include controlling for the effects of abrupt shifts in

external flows such as tourism and remittances experienced over the course of the

pandemic. Such adjustments to control for the COVID shock are necessary for providing

more intuitive estimates of excess imbalances.

Box 2: Treasury’s Global Exchange Rate Assessment Framework

To analyze excess external imbalances, Treasury uses its Global Exchange Rate 

Assessment Framework (GERAF). GERAF is a flexible tool developed by Treasury and 

builds on a substantial body of literature and applied practices for assessing imbalances. 

GERAF provides a rigorous, multilaterally consistent method for assessing external 

imbalances, exchange rate misalignment, and the role of policy in contributing to both. 

GERAF employs an econometric model to estimate current account balances using a 

wide range of determinants including cyclical factors, macroeconomic and structural 

fundamentals, demographics, and macroeconomic policies. GERAF can then assess 

excess imbalances by comparing cyclically adjusted current account balances against 

current account “norms,” or what GERAF estimates current account balances should be 

when each of the macroeconomic policies in the model are set to “desirable levels.” 

Treasury calibrates these “desired levels” for each year in line with Treasury’s view of 

the policies that will achieve strong, sustainable, and balanced growth over the medium 

term (reflecting appropriate domestic and external balances for all countries). The 

difference between the observed cyclically adjusted current account and its norm, or 

current account gap, identifies when a trading partner’s current account is stronger or 

weaker than warranted. 

Treasury considers current account gaps greater than or equal to 1% of GDP to reflect 

stronger-than-warranted current account balances. Conversely, Treasury considers 

current account gaps less than or equal to -1% of GDP to reflect weaker-than-warranted 

current account balances. Treasury considers current account gaps between -1% and 
56

1% of GDP to reflect current account balances in line with economic fundamentals and 

desirable policies.

While this Report monitors current account balances on a quarterly basis, Treasury’s 

assessments of current account gaps are made at the annual level due to the limited 

availability of quarterly data across economies and variables in the model. 

Further detail can be found in the GERAF methodology paper, available on Treasury’s 

website.26

Criterion (3) – Persistent, one-sided intervention: 

Treasury assesses net purchases of foreign currency, conducted repeatedly, in at least 8 out

of 12 months, totaling at least 2% of an economy’s GDP, to be persistent, one-sided

intervention.27 Columns 1a and 1c in Table 2 provide Treasury’s assessment of this

criterion.28 In economies where foreign exchange interventions are not published,

Treasury uses estimates of net purchases of foreign currency as a proxy for intervention. 

Highlighted in red in column 1a and 1c are the five major trading partners that met this

criterion for the four quarters through June 2021, per Treasury estimates.

Summary of Findings

Pursuant to the 2015 Act, Treasury finds that Taiwan and Vietnam met all three criteria for

enhanced analysis in the current review period of the four quarters through June 2021

based on the most recent available data. Switzerland, which had met all three criteria for

enhanced analysis in the two preceding Reports, met two of the three criteria for enhanced

analysis under the 2015 Act. Additionally, eleven major trading partners met two of the

three criteria for enhanced analysis under the 2015 Act in this Report or in the April 2021

Report. These twelve economies—China, Japan, Korea, Germany, Ireland, Italy, India,

Malaysia, Singapore, Thailand, Mexico, and Switzerland—constitute Treasury’s

Monitoring List. 

26 Available at https://home.treasury.gov/system/files/206/Global-Exchange-Rate-Assessment-FrameworkMethodology.pdf.

27 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.

28 Treasury uses publicly available data for intervention on foreign asset purchases by authorities, or

estimated intervention based on valuation-adjusted foreign exchange reserves. This methodology requires

assumptions about both the currency and asset composition of reserves in order to isolate returns on assets

held in reserves and currency valuation moves from actual purchases and sales, including estimations of

transactions in foreign exchange derivatives markets. Treasury also uses alternative data series when they

provide a more accurate picture of foreign exchange balances, such as Taiwan’s reporting of net foreign

assets at its central bank. To the extent the assumptions made do not reflect the true composition of reserves,

estimates may overstate or understate intervention. Treasury strongly encourages those economies in this

Report that do not currently release data on foreign exchange intervention to do so.
57

• China has met one of the three criteria in every Report since the October 2016 Report,

having a significant bilateral trade surplus with the United States, with this surplus

accounting for a disproportionate share of the overall U.S. trade deficit. China met two

criteria in this Report for the first time since the April 2016 Report (the initial Report

based on the 2015 Act), having a material current account surplus and a significant

bilateral trade surplus with the United States. 

• Japan and Germany have met two of the three criteria in every Report since the April

2016 Report, having material current account surpluses combined with significant

bilateral trade surpluses with the United States. 

• Korea has met two of the three criteria in every Report since April 2016, except for the

May 2019 Report, having a material current account surplus and a significant bilateral

trade surplus with the United States. While Korea’s bilateral trade surplus with the

United States briefly dipped below the threshold in 2018, it rose back above the

threshold in 2019. 

• 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. Based on

the available data at the time of each Report’s release, Switzerland met all three of the

criteria in the April 2021 Report and the December 2020 Report. Switzerland met two

of the three criteria in this Report, having a significant bilateral trade surplus with the

United States and engaging in persistent, one-sided intervention over the reporting

period.

• Thailand has met two of the three criteria since the December 2020 Report, having a

material current account surplus and a significant bilateral trade surplus with the

United States.

• 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, the

April 2021 Report, and the December 2020 Report. 

• India has met two of the three criteria since the April 2021 Report, having a significant

bilateral trade surplus with the United States and engaging in persistent, one-sided

intervention over the reporting period. 

• Mexico has met two of the three criteria since the April 2021 Report, having a material

current account surplus and a significant bilateral trade surplus with the United States. 

• Ireland met two of the three criteria in the April 2021 Report based on available data at

the time, having a material current account surplus and a significant bilateral trade

surplus with the United States, and therefore remains on the Monitoring List in this
58

Report. Ireland met one criterion in this Report, having a material current account

surplus with the United States.

• Taiwan met two of the three criteria in the December 2020 Report, having a material

current account surplus and a significant bilateral trade surplus with the United States. 

Taiwan met all three of the criteria in this Report and the April 2021 Report. 

Treasury will closely monitor and assess the economic trends and foreign exchange

policies of each of these economies.

Further, in the April 2021 Report, Treasury determined that there was insufficient

evidence to make a finding that any economy covered in the Report manipulates its

exchange rate for either of the purposes referenced in the 1988 Act. Through its continued

enhanced engagements with Vietnam, Switzerland, and Taiwan, as well as a thorough

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

Treasury has determined that none of these economies intervened in currency markets in

the four quarters through June 2021 to prevent effective balance of payments adjustment

or gain an unfair competitive advantage in trade. Treasury has also concluded that no

other major trading partner of the United States engaged in conduct of the kind described

in Section 3004 of the 1988 Act during the relevant period.

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.
59

Annex 1: Transparency of Foreign Exchange Policies and Practices

There is broad consensus that economic policy transparency enhances the credibility of

economic institutions and fosters a more efficient allocation of resources as information

asymmetries are reduced. In acknowledgement of this, international organizations have

established numerous initiatives, codes, and best practices to foster policy and data

transparency. The Treasury Department, and the U.S. government more broadly, has long

been a strong advocate for enhancing transparency, including regarding foreign exchange

policies and practices. 

Key Aspects of Transparency

Over time, the IMF has established and revised sets of best practices that encompass or

touch on foreign exchange reserves. Following the Asian crisis in the late 1990s, the IMF

published the Code of Good Practices on Transparency in Monetary and Financial Policies

(TMFP), to underpin a more transparent elucidation of the goals and instruments of policy,

and to enhance the accountability of central banks and financial regulators, including with

respect to foreign exchange reserve policies. It also established the Guidelines for Foreign

Exchange Reserve Management, which sets out best practices with respect to transparency,

governance, risk management, and the conduct of foreign exchange reserve management in

efficient markets. 

The IMF also created a data template on international reserves and foreign currency

liquidity, which provides a comprehensive benchmark standard for the content and timing

of public disclosures on foreign reserves.

29 Specifically, the template lays out standards for

the provision of information on the amount and composition of official reserve and other

foreign currency assets held by the monetary authorities and the central government as

well as foreign currency liabilities and guarantees that can lead to drains on these assets. 

The IMF designed the template to strike an appropriate balance between preserving the

integrity and effectiveness of the operations of monetary authorities on the one hand and

the benefits of transparency on the other. The IMF points to several benefits of timely

disclosure of comprehensive information on countries’ international reserves and foreign

currency liquidity, including (1) strengthening the accountability of the authorities; (2)

allowing market participants to form a more accurate view of the condition of individual

countries; and (3) assisting multilateral organizations to better anticipate emerging needs

of countries.

30 Empirical research supports the benefits that foreign reserve data

transparency can have; a 2006 IMF staff working paper finds that exchange rate volatility

in a panel of 48 countries declined following their dissemination of the reserves template

data.31

In July 2020, the IMF Executive Board approved a new IMF Central Bank Transparency

Code (CBTC) as an update to the TMFP that aims to “to facilitate policy effectiveness

29 https://www.imf.org/external/np/sta/ir/IRProcessWeb/sample.aspx.

30 https://www.imf.org/external/np/sta/ir/IRProcessWeb/pdf/guide.pdf.

31 https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The-IMFs-Reserves-Template-andNominal-Exchange-Rate-Volatility-20116.
60

through greater transparency.” Adherence to the CBTC is voluntary and takes into account

the different circumstances of central banks in terms of legal frameworks, governance

arrangements, and levels of economic and financial development. The CBTC is centered on

five pillars: governance, policies, operations, outcomes, and official relations. Under each

pillar, the code provides a list of best practices from “core” to “expanded” to

“comprehensive” for key central bank activities. 

 

The code addresses several transparency considerations with respect to foreign exchange

reserve management. A few highlights include:

Policies: The central bank discloses its policy objectives for foreign exchange reserve

management, along with key considerations behind the policy, details on how oversight

responsibility is allocated, and the potential impact of the policy.

Operations: The central bank discloses the general principles governing its foreign

exchange reserve management operations, including relationships with counterparties and

service providers.

Outcomes: The central bank discloses the results of its market operations, the volume of

activity, and the direction of interventions on its website at a predefined time lag. 

Taken together, the IMF’s various transparency provisions focus on three essential aspects:
61

Foreign Exchange Policies: Policy effectiveness can be strengthened if the public knows

the goals and instruments of policy, if the authorities can make a credible commitment to

meeting them, and if they are held accountable.

32 Does the central bank or competent

government authority clearly lay out the circumstances under which it will intervene in

foreign exchange markets? 

Most of the economies included in this Report have some form of a stated intervention

policy. The formats for dissemination of intervention policies vary and include a dedicated

page on the central bank’s website, a statement in a monthly bulletin, or reference to

intervention policy in a speech. The vast majority of intervention objectives, including in

the United States,

33 refer to countering disorderly market conditions, which has been the

thrust of IMF policy advice for economies with floating exchange rate regimes.

34 However,

there are varying degrees of specificity of what makes up disorderly market conditions. 

The United States demonstrates through its track record of intervening only three times

since 1996 that “disorderly” is truly rather extraordinary. The three events that spurred

U.S. intervention were the Asian crisis in the late 1990s, volatility associated with euro

introduction, and following the earthquake and subsequent tsunami in Japan in 2011. In

each of these intervention episodes, the United States acted in concert with other central

banks. 

The Bank of Canada provides some explanation of what it considers to be disorderly:

Bank of Canada’s policy is to intervene... only in the most exceptional of 

circumstances. Intervention might be considered if there were signs of a serious 

near-term market breakdown (e.g., extreme price volatility with buyers or sellers 

increasingly unwilling to transact), indicating a severe lack of liquidity in the 

Canadian-dollar market.35

This elaboration, along with Bank of Canada’s track record of infrequent intervention36 and 

publication of intervention when it happens, provides a high degree of transparency and 

accountability with respect to Canada’s intervention policies. 

A few exchange rate authorities’ intervention policies make reference to the level of the

national currency in addition to volatility. The Swiss National Bank’s intervention policy

refers to “eas[ing] pressure on the currency.” While the Reserve Bank of Australia

maintains a floating exchange rate and rarely intervenes, it “retain[s] the discretion to

intervene to address gross misalignment of the exchange rate.”

Economies that manage their exchange rate within a band, such as Singapore, have either

an implicit or explicit policy that they will intervene when the exchange rate is set to

breach either side of the band.

32 https://pdfs.semanticscholar.org/270e/ad5930bf6df9e1f75cc98e42aa12d6a7a68f.pdf.

33 Foreign Exchange Operations - FEDERAL RESERVE BANK of NEW YORK (newyorkfed.org).

34 See the IMF’s External Sector Report, 2019.

35 https://www.bankofcanada.ca/rates/exchange/foreign-exchange-intervention/.

36 The Bank of Canada has not intervened since the coordinated G-7 intervention in March 2011.
62

Intervention Practices: While transparency of intervention policies lays out, ex ante, the

conditions under which the exchange rate authorities would intervene in foreign exchange

markets, transparency of intervention practices provides for public dissemination of

intervention actions, during or after they have taken place. Highly timely statements or

dissemination of intervention can enhance the impact of the intervention through the

signaling effect, whereby markets adjust their exchange rate expectations when they

perceive intervention as signaling a change in future monetary policy. Timely statements

can also support policy credibility by demonstrating adherence to intervention policies.

37 

The Treasury Secretary typically confirms U.S. intervention while the Federal Reserve is

conducting the operation or shortly thereafter. Often, statements that reflect the official

U.S. stance on its exchange rate policy accompany the Treasury's confirmation of

intervention activity.

There may be some situations when exchange rate authorities would not choose to

announce intervention immediately. When an economy facing market concern over the

adequacy of foreign exchange reserves enters the market to replenish reserves, a public

statement acknowledging low reserves could exacerbate volatility. Where there is concern

the intervention may not achieve its intended goal, there may be a reluctance to announce

an intervention. In cases such as these, however, aggregating foreign exchange purchases

and/or sales over time, potentially combined with a delay in publication, could mitigate

some of these concerns.

Foreign Exchange Reserves: A last aspect of transparency is the dissemination of

information about the amount and composition of an economy’s foreign exchange reserves. 

All of the economies covered in this Report disseminate the value of foreign exchange

reserves on at least a monthly basis, and all except Vietnam publish the data within one

month of the reporting period. All but three economies (China, Taiwan, and Vietnam) fully

publish data consistent with the IMF’s template on international reserves and foreign

currency liquidity (IRFCL). A smaller subset, including the United States, UK, Canada,

Switzerland, Australia, Brazil, and Mexico, publish the full currency composition of their

foreign exchange reserves to the public. Most other economies, while they do not

disseminate reserve composition publicly, provide this information confidentially to the

IMF—through its Composition of Foreign Exchange Reserves (COFER) database38—which

then aggregates the data and reports total currency composition of reporting economies’

reserves on a quarterly basis.

Recent Developments in Transparency

In recognition of the benefits of transparency, many advanced economy exchange rate

authorities began enhancing the transparency of their exchange rate regimes in the mid1990s. They are now highly transparent, with comprehensive information about foreign

37 https://www.imf.org/en/Publications/Occasional-Papers/Issues/2016/12/31/Official-Foreign-ExchangeIntervention-17920.

38 Currently 149 economies report to the IMF’s COFER database. 
63

exchange reserves published in a highly timely manner, and intervention policies and

practices elaborated and made public. Several emerging economies have achieved similar

levels of transparency more recently. Brazil and Mexico set high standards for other

emerging market economies with timely publication of data on their foreign exchange

reserves and any foreign exchange intervention, and public dissemination of the currency

composition of their reserves. India is also very transparent and publishes key data in a

timely manner, though it does not publicly provide the currency composition of foreign

exchange reserves. These economies adopted and implemented highly transparent foreign

exchange regimes without adverse market reaction. 

A few other economies have taken some steps toward enhancing transparency in recent

years. The Bank of Korea issued publicly for the first time in 2019 the value of its foreign

exchange intervention over a six-month period with a quarterly lag and has since moved to

a quarterly dissemination with a quarterly lag. Singapore now reports six-monthly

intervention with a three-month lag. Switzerland recently took a first step toward greater

transparency by moving from annual to quarterly publication of foreign exchange

intervention data.

While these steps are very welcome, many economies’ transparency practices remain

deficient: 

• As Treasury has stressed in past reports, China’s exchange rate practices and policies

continue to lack transparency, including its lack of disclosure regarding intervention in

foreign exchange markets, as well as directing changes to the interest rates of RMBdenominated assets that trade offshore, directing the timing and volume of forward

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

exchange proceeds by state-owned enterprises. Given China’s long history of

facilitating an undervalued currency through protracted, large-scale intervention in the

foreign exchange market, and the sheer size of China’s reserves, it is increasingly

troubling that China has not enhanced the transparency of its foreign exchange policies

and practices. 

• Although not a member of the IMF, Taiwan uses the IMF’s Special Data Dissemination

Standard (SDDS) framework to provide data on many aspects of its economy, including

the real, fiscal, financial, and many of the external sector accounts. Taiwan publishes its

foreign exchange intervention data on a semi-annual basis and, in March 2020, Taiwan

began disclosing data on the central bank’s large stock of foreign exchange swaps on a

monthly basis. Taiwan does not, however, publish data on the full details of its

international reserves in accordance with the SDDS reserves template. 

 

• Thailand, Malaysia, and Vietnam neither publicly publish intervention nor provide the

IMF with the currency composition of their foreign exchange reserves, providing

significant scope to enhance transparency. Thailand, Vietnam, and Malaysia disclose

foreign exchange intervention to Treasury and granting consent to publish such data in

the FX Report. 
64

Table 1: Transparency of the United States and Its Major Trading Partner’s Foreign

Currency Regimes

Foreign Exchange Reserves Data Intervention

Headline 

Reserves: 

Frequency/Lag

Derivative 

Position 

in IRFCL

Currency 

Composition

Stated 

Objective

Publish 

Intervention

Frequency Lag

USA Weekly/1 day Yes Public Yes Yes As it 

happens* None

ECB Monthly/2 

weeks Yes Public39 No Yes As it happens* None

UK Monthly/3-7 

days Yes Public Yes Yes As ithappens* None 

Japan Monthly/1 

week Yes COFER Yes Yes Monthly 2 days

Canada Monthly/1 

week Yes Public Yes Yes As ithappens* None

Switzerland Monthly/1 

week Yes Public Yes Yes Quarterly 3 months

Australia Monthly/1 

week Yes Public Yes Yes Annually40 4 months

Brazil Daily/2 days Yes Public Yes Yes Daily 5 days

Mexico Weekly/4 days Yes Public Yes Yes Monthly 6 days

India Weekly/7 days Yes COFER Yes Yes Monthly 2 

months

China Monthly/1 

week No41 COFER No No

Taiwan Monthly/1 

week No No Yes Yes Semiannually

3 

months

Korea Monthly/1 

month Yes COFER Yes Yes Quarterly 3 months

Singapore Monthly/1 

week Yes COFER Yes Yes Semiannually

3 

months

Thailand Weekly/1 week Yes No Yes Yes42 Semiannually

3 

months

Malaysia Biweekly/1 

week Yes No Yes Yes43 Semiannually

3 

months

Vietnam Monthly/2-3 

months No No Yes Yes44 Semiannually

3 

months

* Intervention is published officially in certain reports on a regular basis but in practice intervention is

announced on the day it takes place.

39 The ECB’s template on international reserves and foreign currency liquidity reports the currency

composition of the ECB’s official reserve assets each December but does not provide a comparable

breakdown for the Eurosystem.

40 Australia publishes daily foreign exchange intervention one time per year in October. Australia has not

intervened in foreign exchange markets since November 2008.

41 China only discloses total short positions in forwards and futures in foreign currencies.

42 Thailand discloses its foreign exchange intervention to Treasury with consent to publish in the FX Report.

43 Malaysia discloses its foreign exchange intervention to Treasury with consent to publish in the FX Report.

44 Vietnam discloses its foreign exchange intervention to Treasury with consent to publish in the FX Report.
65

Treasury will continue to press its major trading partners to make significant strides in

enhancing the transparency of currency practices. As part of this effort, Treasury will

monitor and provide its assessment of foreign exchange policy transparency in an Annex to

the semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading

Partners of the United States on a regular basis. 
66

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.