Current Account Balance

Currency manipulation is one way countries can shift patterns of trade in their favor. By buying foreign currency in the market, a country can artificially change the price of its imports and its exports. Countries do so to boost their own exports, especially if they otherwise have trouble generating the demand their economies need to grow. But currency intervention by U.S. trading partners leads to job losses in parts of the U.S. economy, which is one reason why the United States has run persistent trade deficits. Because of these concerns, in the 2015 Trade Enforcement Act the U.S. Congress required that the Department of the Treasury lay out specific indicators it would use to determine whether a country should be named a currency manipulator. The Treasury has subsequently identified three criteria: a trade surplus with the United States of more than $20 billion a current account surplus (the current account is a broader measure of trade that includes foreign debt payments and investment income but is usually close to a country’s overall trade balance) of more than 2 percent of the economy’s gross domestic product (GDP) intervention—government purchases of dollars in the foreign exchange market—of over 2 percent of the economy’s GDP, with purchases of foreign exchange in six of the last twelve months Somewhat confusingly, President Donald J. Trump named China a currency manipulator in August 2019, even though the country did not meet the three criteria of the Trade Enforcement Act. To do so, Trump drew on an older definition of currency manipulation set out in the 1988 Omnibus Foreign Trade and Competitiveness Act that remains on the books. Rather than using specific criteria, the 1988 trade act defines manipulation as action with the purpose of “preventing . . . balance of payments adjustments” or “gaining an unfair competitive advantage in international trade.” This tracker, however, focuses on using the indicators set out by the U.S. Treasury in 2015, as that information provides a clearer nonpartisan guide to currency manipulators. How to Use the Tracker The tracker highlights indicator values in red when they exceed the Treasury threshold. Select a fiscal quarter, going back to 2000, to compare twenty-five economies across three indicators. Scroll down to select an economy to view its historical data. Scroll further down to read about the data and view additional resources.     About the Data This interactive tracks twenty-five global economies for evidence of currency manipulation. These economies were selected based on their membership in the Group of Twenty (G20), the scale of their trade with the United States, and the size of their current account surplus as a share of their GDP. (Singapore is a small economy, but it runs one of the world’s largest current account surpluses.) The tracker analyzes data on the three variables the U.S. Treasury uses to assess countries for manipulation. Bilateral trade in this interactive tracks trade in goods between the United States and another country. The U.S. Treasury also uses goods trade, as data on services trade is not available on a timely basis for many of the economies covered, and generally speaking the services trade data is much more poorly measured than goods trade. Services trade generally cannot be directly measured by customs officers at ports and airports.   The current account measures an economy’s trade in goods and services and its cross-border interest and dividend payments. It differs from an economy’s overall trade balance (goods and services) largely because it captures interest payments on debt (or interest earned on cross-border lending) and the profit earned on cross-border investment. Foreign exchange intervention is in many ways the most difficult variable to assess. The U.S. Treasury looks narrowly at the foreign currency purchased or sold by a country’s monetary and fiscal authorities for its formal reserves, together with any disclosed changes in the forward position of that economy’s central bank. (Many countries buy foreign currency and then swap the foreign currency with their banks for local currency; the commitment in the swap contract to buy the foreign currency back at a fixed price appears in the International Monetary Fund’s reserve disclosure template as a “forward” purchase of foreign exchange.) This definition leaves out the foreign currency bought or sold by sovereign wealth funds, sovereign pension funds, and state banks. As many governments do not disclose their actual intervention, the U.S. Treasury generally estimates intervention in the market by subtracting an estimate of the interest income on existing reserves from the reported increase in the countries’ reserves. That increase can be gleaned from the balance of payments (BOP) data, which should be adjusted to avoid changes in reserves that stem from changes in the valuation of existing reserves, or the reported increase in reserves can be adjusted for estimated valuation changes. This tracker tries to replicate the Treasury’s methodology, but it potentially leaves out “shadow” intervention—purchases or sales of foreign currency by state banks and sovereign wealth funds. In order to calculate interest income, this tracker assumes that two-thirds of each country’s stock of reserves is composed of U.S. dollar–denominated assets and the rest is in euro-denominated assets. The dollar-denominated assets grow by the implied interest rate paid on foreign holdings of U.S. Treasury securities; the euro-denominated assets grow by an average of the European Central Bank’s effective deposit and marginal lending rates. The resulting interest income is then subtracted from that quarter’s BOP reserve flow data. When possible, this tracker includes changes in a central bank’s forward position. But such data is unavailable in a few important cases, most notably Taiwan. This tracker is updated quarterly, on a trailing four-quarter basis. The U.S. Treasury also looks at the data on a trailing four-quarter basis but assesses the United States’ major trading partners only twice a year. Additional Resources Make the Foreign Exchange Report Great Again Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States (January 2020) [PDF] Asia Still Lags When It Comes to FX Market Transparency Looking for the Mysterious Hedging Counterparty of Taiwan’s Lifers

Trump's trade war didn't really put a dent in China's balance of payments. And China looks like it has the kind of external balance sheet needed to weather the corona virus shock. China has a lot of domestic debt, but it remains a pretty big global creditor.

Any economy that saves 45 percent of GDP will tend to run a current account surplus, China included. Keeping its current account surplus down takes extraordinary (though largely off-budget) fiscal effort. And faster financial account liberalization almost certainly would result in a depreciation and push China back toward surplus.

China's surplus is down relative to its pre-global crisis level, both in dollar terms and as a percent of China's own GDP.    The same cannot be said of China's neighbors.   East and Southeast Asia are still a substantial exporters of savings to the rest of the world.

The world's surplus countries have the ability to do more to support global growth.

Almost all oil-importing emerging economies with current account deficits are under market pressure to adjust ... 

A deep dive into the details of China's balance of payments over the last few quarters of data. During the dollar's depreciation in 2017 and the first quarter of 2018, it looks like China was adding to its official assets once again—though the growth largely came from the state banks.

The impact of the U.S. tax reform on the U.S. trade balance was a hot item of debate last December. There was an argument that reducing the headline tax rate—and creating an even lower tax for the export of intangibles—would reduce the incentive for firms to book profits abroad in offshore tax centers. Booking those profits at home would raise U.S. services exports—while the service “exports” of countries like Ireland and Luxembourg (really re-exports of intellectual property created in the U.S) would fall. This would have no overall effect on the balance of payments. The rise in the recorded exports of intellectual property from the U.S. would be offset by a fall in the offshore income of U.S. firms. For example, Google (U.S.) would show a bigger profit as offshore sales would be booked as exports of IP held in the U.S. (a service export) while Google (Bermuda) would show a smaller profit —and that would translate both into a smaller trade deficit and a smaller surplus on foreign direct investment income.*  But shifting paper profits around would bring down the measured trade deficit—a potential win for Trump. It is obviously too soon to assess the full impact of the tax reform. But it isn’t too soon to start looking for some clues. The q1 balance of payments data doesn’t suggest that firms have lost their appetite for booking profits abroad, or their appetite for booking the bulk of their offshore profits in low tax jurisdictions. This shouldn’t be a surprise—the lowest rate in the new U.S. tax code is the new global minimum rate on intangibles. What changed?  As expected, firms stopped “reinvesting” their earnings abroad (“reinvestment” allowed the firms to defer paying corporate tax under the old tax code and wait for a repatriation holiday to free up their "trapped" profits abroad) and raised their dividend payments back to headquarters. No surprise there: the reform ended the incentive to legally hold profits offshore so as to defer tax, as there is no incremental U.S. tax on funds repatriated to headquarters. To be clear, the “reinvestment” abroad was a matter of accounting. The profits weren’t actually held abroad. Apple (Ireland) couldn’t put its funds in Apple’s main bank account, or lend directly to Apple (U.S.). But it could put money on deposit in a U.S. bank, buy U.S. Treasury bonds and buy the bonds issued by other companies. Now though there is no need to maintain the fiction that the funds are offshore. Over $300 billion was notionally sent back to the U.S. in q1 alone (an annualized pace of $1.2 trillion). That is literally off the charts… Still, the stock of accumulated funds legally held abroad in order to defer payment of U.S. tax was huge, and even the massive dividend payments in q1 have only made a small dent in the accumulated stock. Around $3 trillion has been reinvested abroad since the infamous Homeland Investment Act of 2004  (The number from the balance of payments matches reasonably well with other estimates).  The details of the balance of payments suggest the bulk of that was “reinvested” in tax havens and thus almost certainly wasn’t invested in physical assets.** Of course, tax structures take time to set up and time to unwind. The data from the first quarter may not be indicative of how the balance of payments will evolve as firms and their accountants digest all the implications of the new law. As interesting, if not more so, are the first reports of the tax rates that profit-shifting firms will pay under the new tax law. And, well, those reports don’t suggest that the firms have any real incentive to shift either their intellectual property or actual manufacturing back to the U.S. For example, a large pharmaceutical firm that has placed its intellectual property in Bermuda and seems to produce primarily in Puerto Rico (a part of the U.S., but outside the U.S. for tax purposes) and Ireland estimates that it will now pay a tax rate of 9%. That’s a lot lower than the tax rate it would pay if it located its intellectual property and physical production in the U.S. It is also lower than the global minimum tax rate of 10.5% on intangibles. The tax structure is pretty direct—put your IP in a really low tax jurisdiction, and sweep all the profits there, so that they don’t stay in the fairly low tax jurisdictions where manufacturing takes place, let alone the location of most sales.   Michael Erman and Tom Bergin of Reuters report: “analysts and academics say corporate filings often show that drug companies frequently reduce their taxes by parking patents in a low-tax haven…and then have their affiliates - which manufacture or market the drug - pay the tax haven subsidiary royalty fees for the right to use the patent. This arrangement sees a drug sold into a target market, like the United States, at a high price, with the U.S. distribution arm getting a sales margin as low as 5 percent. Sometimes the U.S. distribution profit is not enough to cover group costs incurred in the United States.” And Richard Waters of the Financial Times has indicated that the bulk of the big technology firms aren’t going to unwind their tax structures either. Not a surprise really—“ tax reform” was not designed to raise revenues, but rather to cut corporate America’s tax bill. Including, it seems, the taxes of companies that were engaged in aggressive forms of tax shifting (e.g. showing operating losses in the U.S. operations even though the firm was globally very profitable). So there aren’t likely to be big changes in the locations where paper profits are booked.  Nor will there be a sudden fall in the U.S. trade deficit. */ U.S. firms earn more abroad than foreign firms report to earn in the U.S., even though the stock of foreign direct investment in both directions, measured at market value, is roughly equal. **/ These previously tax deferred offshore profits were subject to a one-time tax as the U.S. transitioned to a new system for taxing offshore income last December:  the accumulated stock of tax deferrred offshore profits was taxed at 15.5% if the profits were held in cash, and 8% if firms really has invested in tangible assets abroad—and firms have to pay this to settle their deferred liability no matter whether they legally repatriate the profits or not.  

   

Emerging markets have come under a bit of pressure recently, with the combination of the dollar’s rise and higher U.S. ten year rates serving as the trigger. The Governor of the Reserve Bank of India has—rather remarkably—even called on the U.S. Federal Reserve to slow the pace of its quantitative tightening to give emerging economies a bit of a break. (He could have equally called on the Administration to change its fiscal policy so as to reduce issuance, but the Fed is presumably a softer target.) Yet the pressure on emerging economies hasn’t been uniform (the exchange rate moves in the chart are through Wednesday, June 13th; they don't reflect Thursday's selloff). That really shouldn’t be a surprise. Emerging economies are more different than they are the same. With the help of Benjamin Della Rocca, a research analyst at the Council on Foreign Relations, I split emerging economies into three main groupings: Oil importing economies with current account deficits Oil importing economies with significant current account surpluses (a group consisting of emerging Asian economies) And oil-exporting economies It turns out that splitting Russia out from the oil exporting economies makes for a better picture. The initial Rusal sanctions were actually quite significant (at least before Rusal got a bit of a reprieve).   And, well, Mexico is a bit of a conundrum, as it exports (a bit) of crude but turns into a net importer if you add in product and natural gas.     But there is clearly a divide between oil importers with surpluses (basically, most of East Asia) and oil importers with deficits. The emerging economies facing the most pressure, not surprisingly, are those with growing current account deficts and large external funding needs, notably Turkey and Argentina. In emerging-market land, at least, trade deficits still matter. In fact, those that have experienced the most depreciation tend to share the following vulnerabilities: A current account deficit A high level of liability dollarization (whether in the government’s liabilities, or the corporate sector) Limited reserves Net oil imports Relatively little trade exposure to the U.S., leaving little to gain from a stimulusinduced spike in U.S. demand Doubts about their commitments to deliver their inflation targets, and thus the credibility of their monetary policy frameworks. It is all a relatively familiar list. Though to be fair, Brazil has faced heavy depreciation pressure recently even though it has brought its current account down significantly since 2014.*  Part of the real’s depreciation is a function of the fact that Brazil and Argentina compete in a host of markets, and Brazil must allow some depreciation to keep pace with Argentina. Part of it may be a function of market dynamics too, as investors pull out of funds with emerging market exposure, amplifying down moves. And of course, part of it comes from increasingly pessimistic expectations for Brazil’s ongoing economic recovery—driven by uncertainty ahead the coming presidential elections together with a quite high level of domestic debt. And for Mexico, well, elections are just around the corner and uncertainty about the future of NAFTA can’t be helping… * Brazil also benefits from having much higher reserves than either Turkey or Argentina.  Its reserves are sufficient to cover the foreign currency debt of its government as well as its large state banks and firms in full.  This has given the central bank the capacity to sell local currency swaps to help domestic firms (and no doubt foreign investors holding domestic currency denominated bonds) hedge in times of stress.  But Brazil's reserve position is a topic best left for another time.

I increasingly suspect my view on Chinese “rebalancing” is at odds with the current consensus (or perhaps just with a plurality of the investment bank analysts and financial journalists who watch China). In two significant ways. One. I think China’s balance of payments position is fairly robust. In both a “flow” and a “stock” sense. The current account isn’t that close to falling into a deficit (and it wouldn’t be that big a deal if China did have a modest deficit). And China’s state is back to adding to its foreign assets in a significant way. The days of “China selling reserves” are long past. And two, I think the rebalancing that has lowered the measured current account surplus is more fragile than most think. It is a function of policies—call it a large off-budget “augmented” fiscal deficit or excessive credit growth—that some believe to be unsustainable, and many think are unwise. The IMF, for example, wants China to bring down its fiscal deficit and slow the pace of credit growth, policies that directionally would raise not lower the current account surplus. I think these views are consistent—I tend to think that China’s current account surplus has come down by a bit less than many, but it has come down. Yet the way it has come down (through higher investment rather than a large fall in savings) doesn’t create confidence that it will stay down. China hasn’t embraced the set of policies needed for a more durable rebalancing, notably centralizing and expanding the provision of social insurance and creating a far more progressive tax system that relies less on regressive scoial contributions (payroll taxes). Let me try to document both points. The continued robustness of China’s balance of payments The Economist has highlighted the deficit in China’s current account in the first quarter. The Financial Times has noted that China doesn’t appear to be intervening in the foreign exchange market (though one measure of intervention, FX settlement, did suggest someone was buying in April, rather surprisingly). Many—from the IMF to Paul Krugman—have emphasized that the bulk of the global balance of payments surplus is now found in aging advanced economies (e.g. not China). I would highlight two competing points: A: China’s manufacturing surplus remains large, and shows no sign of falling at current exchange rates. China’s annual manufacturing surplus is still around $900 billion (for comparison, Germany’s manufacturing surplus is around $350-400 billion depending on the exchange rate and the U.S. deficit in manufacturing is around $1 trillion) and doesn’t show any sign of falling. I don’t see signs that the (modest) real appreciation this year will seriously erode China’s competitiveness—though it should moderate China’s export outperformance (Chinese goods export volumes grew at a faster pace than global trade in 2017). China naturally will export manufactures and import commodities. Some surplus in manufactures is normal. And since it is now the world’s largest oil importer, its overall balance increasingly will swing with the price of oil. Every $10 a barrel price rise increases China’s oil and gas import bill by about $30 billion and pulls the surplus down by roughly that amount in the short-run (what matters for the current account is the price of oil relative to spending in the oil importing countries, but in the short-run, a rise in oil prices raises oil exporters income more than spending). And China exports to manufactures to pay for its imports of “vacations”– though its deficit in tourism is almost certainly somewhat smaller than the inflated number in the official Chinese data.  No matter—China’s very real surplus in manufactures continues to provide real support for China’s overall balance of payments. And I have no doubt that China could slow the outflow of tourism dollars (or yuan) if it really was worried about its current account. B: China is once again adding to its reserves. A current account surplus would still be associated with weakness in the overall balance of payments if the surplus was smaller than needed to finance a large underlying pace of private capital outflows—as was the case after China’s 2015 devaluation/ cum depreciation. But here too I think China’s position is fairly strong. Net private outflows have fallen, and China’s state is again accumulating foreign assets. To be sure, the reported foreign exchange reserves on the PBOC’s yuan balance sheet aren’t growing—and that’s an important data point. But in the balance of payments, reserves are growing—they were up about $90 billion in 2017, and are up by $120 billion in the last four quarters of data. The discrepancy between the balance of payments and the PBOC’s balance sheet is a bit mysterious. Interest income is the most obvious explanation. Yet $120 billion in interest income seems a tad high, as it implies China has found a way to earn about 4% on its $3 trillion in reported reserves (though Trump’s fiscal policy should eventually make China’s interest income great again … as it should push up the interest rate the U.S. pays on its external debt).   Broader measures of official asset growth that count lending by the state banks and the buildup of the foreign bonds held by the state banks and the foreign equity held by the CIC and China’s various social security funds show an even larger buildup. Full data isn’t yet available for q1, but there is no real doubt that the state banks have continued to add to their external portfolio (there is data on the foreign currency assets of the state banks). To be sure, some of the foreign lending of the state banks is financed now by their borrowing from abroad—policy lending is no longer all about absorbing the current account surplus. That’s math—a $150 billion external surplus (2017 number) cannot finance both $90 billion in reserve growth (2017 number), $100 billion or so in state bank purchases of foreign bonds/policy lending, and $200 billion in outflows through errors and omissions. There is more going on. But the big and growing balance sheet of the state bank system does provide China with lots of hidden scope to manage the exchange rate in subtle ways. The reported foreign currency assets of the state banks—bonds, and overseas loans—now top $600 billion; the balance of payments data if anything suggests a larger stock of offshore claims. Sum it up, and China’s state continues to sit on the biggest pile of external assets in the world—and that pile has grown significantly in the past 18 months. By my measure that China's state has well over $4 trillion in foreign assets, and its total holdings will be back to its pre-devaluation, pre-reserve fall level by the end of this year. A small external deficit—say from an oil shock combined with a trade war with the U.S.—consequently shouldn’t put China’s exchange rate management at risk unless it creates expectations that Chinese policy makers now want a weaker exchange rate. The fragile rebalancing The argument that China’s rebalancing—the fall in its external surplus—is fragile is actually quite simple. China still saves closer to a half of its GDP than a third of its GDP. And as long as that’s true, avoiding a large current account surplus takes rather exceptional policies, policies that look imprudent and dangerous as they will inevitably result in the buildup of internal debt (see Appendix 2 of the IMF's 2017 staff report, among others).   Back in 2000, China was saving and investing around 35 percent of its GDP (the current account was in a modest surplus so savings was a tad higher than investment). In 2017 (and in 2018), even with the recent progress raising consumption, China is projected to save and invest around 45 percent of its GDP. That’s a level of both savings and investment that remains about ten percentage points higher than in 2000. It is still a substantially higher level of savings and investment than has historically been found in high savings Asian economies (setting Singapore aside, as Singapore never disburses the wealth accumulated in Temasek and the GIC). If investment were to fall back to its 2006-08 level of around 40 percent of China’s GDP and savings were to follow the IMF’s forecast, the current account in 2000 would be around 4 percent of China’s GDP, or well over $500 billion. Four percent of GDP doesn’t sound huge—but it would be a record current account as a share of the GDP of China’s trading partners.* And so long as savings is above 40 percent of GDP there is always a risk that the gap between saving and investment could be even bigger. Yet the IMF—reflecting a global consensus—wants China to scale back the growth in its great wall of (internal) debt (yes, that was meant as a reference to Dinny McMahon's book). The Fund—and many others—didn’t think China’s 2016 fiscal stimulus was a good idea, even though that fiscal stimulus likely played a key role in bringing China’s external surplus back under two percent of China’s GDP after the fall in the oil price.* It now wants “less public investment, tighter constraints on SOE borrowing, and [curbs on] the rapid growth in household debt.” That’s the kind of policy recommendation that the Fund typically makes for a country with a large external deficit—it sounds completely reasonable for say Turkey. But for China, such a fall in domestic absorption would mean a return to a large external surplus—unless, as the Fund recognizes, it is accompanied by a serious effort to reduce savings and raise consumption. Yet there is a risk that when China scales back what no doubt is an inefficient level of investment it will end up doing so without adopting the kinds of policies needed to bring down national savings. Neither Liu He nor President Xi has shown much interest in expanding China’s social safety net, or extending real social protection to China’s migrant workers. This isn’t entirely a theoretical risk. Cutting public investment while residential investment was falling without providing policy support for consumption led to a sharp rise in China’s current account surplus in 2014 and 2015, though the full scale of the rise was masked by some shifts in how China measures its current account. A policy agenda built around supply side reform (with Chinese characteristics) consequently scares me a little bit. So long as China saves so much, it also has an underlying problem with internal demand. * If China's current account surplus had remained constant at its 2007 level as a share of non-Chinese world GDP it would now be a bit over $400 billion (and China's hasn't far from that level in 2015 after adjusting for the inflated tourism number).  If China's surplus had remained constant as a share of China's GDP at its 2007 level is would now be about $1.2 trillion.  The choice of scale variable matters: China's current account surplus could not have realistically remained at its 2007 level as a share of China's GDP without causing tremedous global disruption.  ** See for example paragraph 4 of the 2016 article IV staff report, and paragraph 4 of the 2017 staff report.  The Fund was has been fairly clear (see paragrpah 8) that it viewed the substantial fiscal loosening between 2014 and 2016 ("general government net borrowing widened by 2¾ percent of GDP between 2014 and 2016, driving a similar increase in the “augmented” deficit which reached an estimated 12¼ percent") as a mistake as it put China's "augmented" fiscal deficit on an unsustainable trajectory.  

Korea has indicated that it will, very gradually, start to disclose a bit more about its direct activities in the foreign exchange market. The Korean announcement presumably was meant to front-run its currency side agreement with the United States. Optics and all—better to raise your standard of disclosure unilaterally and then lock in your new standard in a trade deal than the reverse. The problem is…Korea’s actual disclosure commitment is underwhelming. If this is all the U.S. is getting out of the side agreement, it is a bad deal. It sets too low a bar globally, and fails to materially increase the amount of information available to assess Korea’s actions in the market. Many emerging markets disclose their purchases and sales (separately) monthly, with a month lag. India for example (see the RBI monthly data here [table 4] and here). That should be the basic standard for any country that wants a top tier trade agreement with the U.S. Remember, the agreement is about disclosure only—it isn’t a binding commitment not intervene. What has Korea agreed to? A lot less. For the next year or so, it will disclose its net intervention semi-annually, with a quarterly lag. That means data on Korea’s purchases next January this won’t be available until the end of September, and January’s purchases will be aggregated with the purchases and sales of the next five months—blurring any signal.* Korea will start to disclose quarterly with a quarter lag at the end of 2019. But that’s still a long lag. Intervention in January 2020 wouldn’t be disclosed until the end of June 2020. Moreover, quarterly disclosure of net purchases doesn’t provide much information beyond what is already disclosed in the balance of payments (BoP). The BoP shows quarterly reserve growth, which combines intervention and interest income, with a quarter lag. Now is it true that quarterly intervention with a quarter lag was the standard in the TPP side agreement. But the Trump Administration has claimed that TPP was a bad deal, and they would do a better deal. They don’t seem to have gotten that out of Korea. And currency intervention should have been a real focus in the negotiations with Korea. There is no doubt Korea intervenes, at times heavily. And I am confident that the absence of any currency discipline in the original KORUS has had a real impact. Korea, in part through intervention, has kept the won weaker than it was prior to the global crisis. And the won’s weakness in turn helped raise Korea’s auto exports, and thus contributed to the increase in the bilateral deficit that followed KORUS. To be sure, Korea’s German style fiscal policy has also contributed to Korea’s overall surplus. But that isn’t something that realistically can be addressed in a trade deal. Moreover, the failure to get a higher standard than TPP undercuts the Trump administration’s argument for bilateral deals. A big, multi-country deal can in theory be held up by a few reluctant countries. Singapore, for example, has made no secret of its opposition to a high standard for the disclosure of foreign exchange intervention (see end note 4 in the currency chapter of the draft TPP agreement; I assume exceptions to quarterly disclosure didn’t arise by accident). Singapore also discloses comparatively little about the activities of the GIC. And a bilateral deal in theory also could address country-specific currency issues—like the activities of Korea’s large government pension fund. A reminder: Korea’s government-run pension fund is building up massive assets, placing a growing share of those assets abroad and reducing its hedge ratio (it is now at zero, or close to it). This at times has looked a bit like stealth intervention. And it certainly has an impact on Korea’s external balance—structural, unhedged outflows of well over a percentage point of Korea’s GDP have helped Korea to maintain a sizeable current account surplus with less overt intervention. And I worry that the pension fund’s balance sheet will in the future provide Korea with an easy way to skirt the new disclosure standard—particularly if Korea would be at risk of disclosing a level of intervention that might raise concerns about manipulation. Suppose the Bank of Korea bought a bit too much foreign exchange in the first two months of a quarter. The Korean government could encourage the pension fund to buy a couple of billion more in foreign assets in the third month of the quarter, and meet that demand through the sale of foreign exchange from the intervention account. Voila, less disclosed intervention. Remember, sales don’t need to be disclosed separately. A bilateral deal in theory could have included commitments disclose the pension service’s foreign assets, and its net foreign currency position vis-à-vis the won (e.g. its hedges, if any). It thus could have set a standard not just for disclosure of direct intervention, but also for disclosure by sovereign wealth and pension funds. The side agreement on currency with Korea consequently looks to be to be a missed opportunity for sensible tightening of disclosure standards, on an issue that really matters for the trade balance.     Now for some super technical points. The intervention data should not precisely match the reserves data. When Korea buys foreign exchange, it sometimes then swaps the foreign exchange with the domestic banks for won. This lowers the net amount of foreign exchange the central bank ends up directly holding, while creating a future obligation to buy back the dollars swapped for won. This shows up in the central bank’s reported forward book. Total intervention thus may exceed the change in reserves in the balance of payments. However, it can be inferred from the combined increase in reserves and forwards—and Korea currently releases both its forwards monthly and its balance of payments data monthly. As a result its intervention can be inferred from these monthly numbers—quarterly data with a quarter lag will add very little. The buildup of government assets abroad—non-reserve government assets that is—now accounts for a significant share of the net outflow associated with Korea’s current account surplus. And with higher oil prices set to lower Korea’s surplus further, that share will grow. As a chart of the net international investment position shows, the rise in the foreign assets by the National Pension Service now accounts for the bulk of the rise in the total foreign assets of the government of Korea. On a flow basis, outflows from insurers are now more important than the pension outflow—however the insurers, unlike the NPS, supposedly hedge. 3. The increased scrutiny of Korea’s management of the won that has come with the negotiation of the currency chapter—and the risk Korea could be named in the foreign exchange report—has had some positive effects. It didn’t keep Korea from intervening pretty massively to block won appreciation in January at around the 1060 mark (and I suspect Korea has bought at a few other times in the first quarter as well). But it does seem to have encouraged the Koreans to take advantage of dollar rallies to sell won and thus hold their net purchases down. In 2015 and 2016 the Koreans didn’t tend to sell dollars unless the won was approaching 1200 (an extremely weak level). In the past few months they have been selling on occasion at around 1100 (or at least not rolling over some maturing swaps and thus delivering dollars to the market). The won’s trading band has been pretty tight. I just think the block at 1060 should disappear.   */ as I understand it, Korea won’t ever disclose its intervention this January—the first disclosed data will be for the second half of 2018.