Rising trade and current account surpluses in China, Taiwan, and South Korea are not translating into stronger currencies, according to new analysis from Commerzbank’s Volkmar Baur. Despite robust export performance, the yuan, Taiwan dollar, and won have all lost ground against the euro and U.S. dollar, pointing to what the report describes as sustained and deliberate foreign‑exchange management by authorities across the region.
Currencies fall as surpluses climb
Since early last year, the three currencies have weakened notably against the euro:
- Chinese yuan: down about 5.5%
- Taiwan dollar: down nearly 9%
- South Korean won: down 12.6% over roughly 15 months
These moves run counter to the usual pattern in which strong exports and rising current account surpluses are associated with currency appreciation.
Baur argues this divergence is largely the result of ongoing intervention in foreign‑exchange markets by regional central banks and authorities, helping to hold down real exchange rates and support export competitiveness.
Imf data point to global spillovers
Citing International Monetary Fund data, the analysis warns that large, persistent surpluses maintained via weaker currencies can push trade deficits onto other economies. That redistribution of imbalances can weigh on global growth by distorting trade flows and compressing demand in deficit countries.
The report frames this as a structural issue: policy choices in surplus economies may be dampening the typical market adjustment process that would otherwise strengthen their currencies and narrow imbalances.
South Korea: record surplus, weak won, heavy intervention
The disconnect is most visible in South Korea, where the won’s weakness has coincided with record external surpluses.
Official figures show the Bank of Korea net sold $22.467 billion in one quarter last year in an effort to support the won. That intervention has continued even as the currency remained under pressure; the won was among Asia’s weakest performers in early 2026, losing about 2% against the dollar by mid‑January.
At the same time, South Korea’s current account surplus surged to an all‑time high of $23.19 billion in February 2026, powered by record semiconductor exports. The simultaneous combination of a record surplus and a soft currency underlines, in Baur’s view, an explicit policy choice.
The central bank has shifted its communication accordingly, signaling that defending the currency now acts as the main constraint on monetary policy, ahead of other domestic considerations such as growth or inflation.
Taiwan: market smoothing and reserve drawdowns
Taiwan’s central bank has adopted a similar approach. Authorities confirmed they intervened in March 2026 to “smooth out volatile capital flows,” an operation that contributed to an $8.60 billion drop in foreign‑exchange reserves that month.
That move came after the Taiwan dollar fell to its weakest level in nearly a year, as heavy foreign equity outflows pressured the currency. Yet Taiwan’s external position remains exceptionally strong: the most recent data show the island’s current account surplus reaching a record $69.9 billion at the end of 2025.
The combination of record surpluses and a soft currency underscores what Baur describes as a region‑wide pattern of disconnect between trade strength and exchange‑rate performance.
China: managed float and tight policy signaling
In China, officials continue to reject the idea that they are using the yuan to gain a trade advantage. People’s Bank of China Governor Pan Gongsheng reiterated in March that Beijing does not intend to deploy the currency as a competitive tool.
Even so, the yuan trades under a tightly managed floating regime. The central bank’s daily reference rate remains a key policy lever, guiding the currency within a narrow band and signaling the authorities’ tolerance for any move.
According to the report, this framework allows China to exert strong influence over the yuan’s value while maintaining a formal commitment to a market‑based system.
Policy over fundamentals
Baur concludes that in China, Taiwan, and South Korea, official policy now plays a more decisive role in exchange‑rate behavior than traditional indicators such as exports or current account balances.
For currency markets, this means:
- Trade and surplus data have partially decoupled from exchange‑rate movements.
- Changes in foreign‑reserve levels and the tone of central bank communication may offer more timely clues about future currency paths.
- Strategies built on the assumption that strong fundamentals will automatically produce currency appreciation are likely to face resistance where authorities are actively shaping exchange‑rate outcomes.
With export surpluses at or near record levels and currencies still under pressure, the report suggests that Asia’s leading manufacturing hubs are prioritizing stability and competitiveness over market‑driven currency strength, with consequences that extend beyond the region.
Curious how currency policies shape FX trades? Deepen your macro edge with our forex trading guide and sharpen your strategy.
Disclaimer: The content on this page is provided for general informational purposes only and does not represent the views or financial advice of Toobit. We make no guarantees regarding the accuracy or completeness of this information and shall not be held liable for any errors, omissions, or outcomes resulting from its use. Investing in digital assets involves risk; users should independently evaluate their financial situation and the risks involved. For further details, please consult our Terms of Service and Risk Disclosure.
