Currency Manipulation Continues to Decline

June 6, 2019 12:30 PM
Photo Credit: 
REUTERS/Cathal McNaughton

Authors’ note: We thank C. Fred Bergsten and Brad Setser for helpful comments on earlier versions.

Currency manipulation, the practice of countries acting to weaken the value of their currency in order to affect their trade balance, fell in 2018 to its lowest levels since 2001. Last year, only Singapore, Norway, and Macao met the criteria for manipulation put forth by Bergsten and Gagnon (2017). Together they purchased an estimated $106 billion in net official assets, which is considerably less than purchases during the peak years of manipulation in 2003–13, when aggregate purchases by manipulators sometimes reached $1 trillion per year. China was the largest currency manipulator during those peak years, but it has been absent from the list for four years in a row.

In recognizing this trend, while employing somewhat misguided criteria, the US Treasury Department again did not name any country a manipulator in its semiannual report to Congress on Foreign Exchange Policies of Major Trading Partners of the United States on May 28. This post updates the status of manipulation by 19 countries using the Bergsten-Gagnon criteria (listed below).[1]

In the table below, the first column displays the number of years out of the three years examined (2016–18) that a country met all of the criteria. The remaining columns display the net official assets, net official flows, and current account balances of these countries. Within each group, the countries are ranked by years of manipulation first and 2018 net official assets in dollar terms second.

Some Oil Exporters Increased Purchases, But Only Norway Manipulated

One notable change in 2018 was an increase in foreign asset purchases by a few major oil exporters. Oil prices fell sharply in 2014 and 2015, prompting many oil exporters to draw down their foreign assets in 2016 and 2017. Prices have recovered partially since then. Only Algeria and Trinidad and Tobago continued to draw down foreign assets in 2018, while Oman and the United Arab Emirates (UAE) returned to balance. The remaining oil exporters—Norway, Kuwait, and Russia—either resumed or increased purchases of foreign assets. Only Norway’s purchases, however, exceed 65 percent of oil exports minus production cost.[2] For most oil producers, the optimal saving rate out of net oil revenues is less than 75 percent, some of which should be invested at home Gagnon (2018).

Some Financial Centers Had Lower Private Capital Inflows in 2018

Financial centers have been the largest manipulators in recent years. In dollar terms, Switzerland and Singapore had the world’s largest net official flows in 2016 and 2017, and Singapore continued to do so in 2018. Manipulation in these economies typically responds to private capital inflows, which can be volatile. In 2018, private capital inflows slowed, reducing the amount of net official flows needed to stabilize their exchange rates. However, net official flows continued to exceed the 2 percent of GDP criterion in Singapore and Macao.

Each financial center’s manipulation is a response to different circumstances. Switzerland’s central bank conducts its manipulation to prevent further appreciation of the Swiss franc and maintain a large current account surplus.[3] Singapore’s manipulation derives primarily from its public pension system, which collects high payroll taxes from workers and invests them entirely overseas through a sovereign wealth fund to back future pension obligations. Hong Kong and Macao have fixed exchange rates and high rates of domestic saving, which create current account surpluses that the monetary authority buys up to prevent appreciation.[4] Macao also has a separate fiscal reserve account that invests fiscal surpluses overseas.

China Is Not Manipulating

China was by far the largest currency manipulator in 2003–13. It reversed that practice in 2015–16, when it sold large amounts of foreign assets to prevent its currency from depreciating when private investors became net sellers. The private net outflow ended in 2017, and China was the third largest net official purchaser in dollar terms that year. But these flows were less than 1 percent of GDP. Based on incomplete data, China made essentially no net purchases or sales in 2018, but maintained its enormous stock of official assets, the bulk of which are reserves.

No Manufacturing Exporter Manipulated in 2018

Thailand had the largest net official flows (in percent of GDP) among the manufacturing exporters in recent years, exceeding all manipulation criteria in 2016 and 2017. However, these flows halted in 2018 and Thailand was no longer manipulating.

Korea, Taiwan, and Israel intervene consistently at levels close to the Bergsten-Gagnon criteria, with average net official flows of 1 to 2 percent of GDP over the past three years. Taiwan and Israel each exceeded the criteria in one of the three years. Korea did not exceed the criteria in 2016–18. Malaysia’s currency intervention has been volatile, perhaps responding to commodity prices and capital flows, but did not exceed the criteria over this period.

Japan is a special case: It raised the target share of its public pension fund invested in foreign assets from 17 percent to 40 percent between 2012 and 2016, implying net international financial flows of more than $200 billion (4 percent of GDP) spread over several years.[5] However, because its public pension fund is managed independently and is supposed to operate on market principles, it is not included in official flows. Public pension funds in other countries, including the United States, are similarly excluded from net official financial flows.[6]

 Updated data for Bergsten and Gagnon's list of currency manipulators*


Bergsten, C. Fred, and Joseph E. Gagnon. 2017. Currency Conflict and Trade Policy: A New Strategy for the United States. Washington: Peterson Institute for International Economics.

Gagnon, Joseph E. 2014. Alternatives to Currency Manipulation: What Switzerland, Singapore, and Hong Kong Can Do. PIIE Policy Brief 14-17. Washington: Peterson Institute for International Economics.

Gagnon, Joseph E. 2018. Can a Country Save Too Much? The Case of Norway. PIIE Policy Brief 18-7. Washington: Peterson Institute for International Economics.

Currency Manipulation Criteria

According to Bergsten and Gagnon (2017), 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 official foreign assets exceed three months of imports;
  • foreign exchange reserves and other official foreign assets exceed 100 percent of short-term external debt, public and private;
  • net official flows exceed 65 percent of oil exports minus production cost;
  • classification by the World Bank as a high-income or upper-middle-income country.


1. This post updates one published in April 2018 that focused on 2015–17. There are notable revisions to estimates for 2017 in this post owing to more complete source data. Libya is excluded owing to lack of data.

2. Nonreserve official assets data for Kuwait, Oman, and UAE are based on outside estimates of the holdings of their sovereign wealth funds. Net official flows data for Oman in 2018 are constructed as changes in the asset estimates, and thus include valuation effects.

3. Officials at the Swiss National Bank argue that their intervention is aimed at preventing deflation. Gagnon (2014) discusses alternative policies Switzerland could adopt to prevent deflation.

4. Alternative policies include easing monetary policy, including through quantitative easing, or allowing the exchange rate to appreciate (Gagnon 2014).

5. It is possible that including these purchases in net official flows would still not exceed the 2 percent of GDP criterion in any one year.

6. The government of Singapore includes the flows arising from its pension system in official flows, presumably because they are invested through a government-run fund that does not operate on strict market principles. Indeed, it is highly unlikely that private investors would direct all of their retirement saving into foreign assets as Singapore does, even in relatively small economies.