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Currency manipulation rebounded in 2020 as pandemic concerns rose



Currency manipulation, the policy by which countries weaken their currencies to boost their trade surpluses, rebounded last year after several years of quiescence, and part of the explanation seems to lie in the COVID-19 pandemic. The pandemic sparked capital flows out of developing economies into advanced economies. The renewed currency manipulation largely reflects an attempt to divert the flows to the largest advanced economies, especially the United States.

Countries manipulate the value of their currency by buying and selling in currency markets in order to make their exports cheaper and imports more expensive.  In 2020, eight countries met the criteria for manipulation put forth in 2017 by C. Fred Bergsten and Joseph E. Gagnon: Guatemala, Hong Kong, Israel, Korea, Singapore, Switzerland, Taiwan, and Thailand. Together, these countries purchased $446 billion in net official assets, considerably more than the purchases of $160 billion by five countries that exceeded the criteria in 2019, but less than during the peak years of manipulation in 2003–13, when purchases by manipulators sometimes exceeded $1 trillion per year.

The US Treasury Department released its semi-annual report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States on April 16. It did not designate any country as a currency manipulator, but it said that Switzerland, Taiwan, and Vietnam met all of its criteria for currency manipulation in 2020 and that it would conduct “enhanced engagement” with these countries to determine if they are manipulating. We plan to post an analysis of the Treasury report soon.

What Defines a Currency Manipulator?

According to Bergsten and Gagnon, a country must meet all of the following criteria to be considered a currency manipulator in a given calendar year:

  • The current account surplus exceeds 3 percent of GDP;
  • Net acquisitions of official foreign-currency assets (net official flows) exceed 2 percent of GDP;
  • Foreign exchange reserves and other net official assets exceed three months of imports of goods and services;
  • Foreign exchange reserves and other net official assets exceed 100 percent of short-term external debt, public and private;
  • Net official flows exceed 65 percent of energy exports minus production cost; and
  • The country is classified as a high-income or upper-middle-income country by the World Bank.

Currency Manipulation in Recent Years

This blog post applies the Bergsten-Gagnon criteria to all countries with 2020 GDP of at least $1 billion in the International Monetary Fund’s World Economic Outlook database (April 2021). The table below shows data for 11 countries that exceeded all criteria in at least one of the past three years, 2018–20.

The first column displays the number of years (out of three) that each country exceeded the criteria. The next two columns display each country’s net official assets (foreign exchange reserves plus other official assets minus official liabilities) in billions of dollars and as a percent of GDP.[1] The next four columns display net official flows (or net acquisitions) each year in billions of dollars as well as in 2020 in percent of GDP. The last two columns display net official flows and the current account balance as a percent of GDP, averaged over the past three years.

Four countries exceeded the criteria only in 2020: Guatemala, Hong Kong, Israel, and Korea. Of these, Guatemala is an outlier, as it barely exceeded each of the first three criteria and has not exceeded all criteria in any other year since 2000. The other three countries were identified as manipulators by Bergsten and Gagnon for several years each during the period 2000–2015.

Iceland exceeded the criteria only in 2019 and not in any other year since 2000.[2] Norway exceeded the criteria in 2018 and was one of the most regular manipulators in prior years according to Bergsten and Gagnon. Macao exceeded the criteria in 2018 and has not reported complete data on official flows since 2019. Its current account was 34 percent of GDP in 2019 but plummeted to -34 percent of GDP in 2020 as tourism collapsed in the pandemic. Prior to 2018 Macao was one of the most frequent manipulators.

Singapore, Switzerland, Taiwan, and Thailand have been regular manipulators in both recent years and during the earlier period, 2003–13. Singapore and Switzerland together accounted for more than half of total currency manipulation in 2020.

Effects of the COVID-19 Pandemic

The COVID-19 pandemic is an important factor behind the resurgence of manipulation in 2020. Private investors fled the riskier low- and middle-income countries for the perceived safety of advanced economies. These capital flows pushed up the currencies of advanced economies relative to those of developing economies and weighed on trade balances in the advanced economies. (Capital inflows can exceed capital outflows only to the extent that imports exceed exports.)

Some advanced economies sought to avoid this trade adjustment by selling their currencies and buying the currencies of other advanced economies. This currency manipulation forces more of the necessary trade adjustment onto the countries whose currencies are being purchased, especially the United States, where the current account balance fell $166 billion. Japan’s current account fell $22 billion, the United Kingdom’s fell $19 billion, and the euro area’s fell $13 billion. Meanwhile, the eight countries in the table that manipulated their currencies in 2020 experienced a $19 billion increase in their combined current account balance.[3] In the absence of manipulation, these countries surely would have had a declining current account balance.

Currency manipulators in 2018–20
  Years of manipulation in 2018–20 2020 net official assets Net official flows 2018–20 average net official flows (percent of GDP) 2018–20 average current account (percent of GDP)
billions of US dollars percent of GDP
billions of US dollars percent of GDP 2018 2019 2020 2020
Financial centers
Singapore* 3 1,400 412 92 110 139 41 32 16
Switzerland* 2 1,020 136 14 16 124 17 7 6
Hong Kong* 1 492 141 2 6 34 10 4 5
Macao** 1 90 164 6 0 n.a. n.a. n.a. 11
Manufacturing exporters
Korea* 1 753 46 24 19 45 3 2 4
Taiwan* 3 671 100 14 16 49 7 4 12
Thailand* 2 238 48 0 17 14 3 2 5
Israel* 1 173 43 6 6 38 9 4 4
Resource exporters
Norway 1 1,341 370 39 24 0 0 5 4
Guatemala* 1 9 11 1 1 2 2 2 3
Iceland 1 6 29 0 1 0 -1 0 4

n.a. = not available
* Met Bergsten-Gagnon criteria for currency manipulation in 2020.
** Macao data are preliminary for 2019 and incomplete for 2020; net official assets are for 2019.
Note: This table lists countries that exceeded all criteria for currency manipulation in at least one year from 2018 through 2020. Differences in data for 2018 and 2019 compared with the July 9, 2020 post reflect revised data. Net energy exports relative to GDP are assumed to have changed in 2020 in proportion to changes in hydrocarbon exports and nominal GDP. Nonreserve official assets and flows are constructed for some countries and years using the perpetual inventory method as described in Gagnon and Sarsenbayev.

Sources: International Monetary Fund, World Bank, Sovereign Wealth Fund Institute, Swiss National Bank, Bank of Guatemala (also accessed via Macrobond), Census and Statistics Department of Hong Kong, Bank of Thailand, Statistics Norway, Singapore Department of Statistics, Central Bank of the Republic of China, and authors' calculations. Sources accessed via Macrobond: Bank of Norway (Norges Bank); Taiwan Directorate-General of Budget, Accounting and Statistics; and Thailand Office of the National Economic and Social Development Council. Data on nonreserve foreign official assets of Taiwan are obtained from annual reports and detailed balance sheets of the Central Bank of the Republic of China. Oil production cost data are obtained from the Wall Street Journal, "Barrel Breakdown," April 15, 2016, and are extrapolated in proportion to US consumer prices.


1. For advanced economies, official liabilities are assumed to be entirely in domestic currency and are not included in this measure.

2. Iceland made large official purchases of foreign currency in 2015–16 as part of the settlement of foreign claims against its banks dating from the Global Financial Crisis of 2008. We choose not to classify these purchases as currency manipulation.

3. Data are from IMF World Economic Outlook database.

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