[AldonSseulJob] Trump's Return Leads to South Korea's Re-designation as 'Currency Watchlist Country'... Why?

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As former U.S. President Donald Trump won the U.S. presidential election,

even before the second Trump administration officially began,

a 'Trump Storm' is sweeping through.

The most representative area is the 'exchange rate,' which we briefly covered in the last episode of 'Aldonssuljab.'

But this time, we again focus on the 'exchange rate' because

the U.S. Treasury Department recently designated South Korea as a 'Currency Monitoring Country.'

What is a currency monitoring country, and

how does this affect our economy? Let's find out.

What is a Currency Monitoring Country?

The U.S. Treasury Department publishes a 'Macroeconomic and Exchange Rate Policies Report' twice a year, once in the first half and once in the second half, submitting it to Congress.

The report targets the top 20 countries with active trade with the U.S.,

monitoring whether any country is gaining unfair trade advantages through exchange rate policies.

Why was South Korea designated as a Currency Monitoring Country this time?

Yonhap News

This action was taken through the U.S. Treasury Department's semiannual report on 'Macroeconomic and Exchange Rate Policies of Major Trading Partners,' announced on November 14 (local time).

According to the report, South Korea had been on the currency monitoring list for seven years since April 2016,

was removed in November last year, and also dropped off the list in June last year,

being removed twice consecutively.

However, this time, South Korea has been added back to the currency monitoring list after one year.

The countries designated as currency monitoring countries this time include South Korea,

China, Japan, Taiwan, Singapore, Vietnam, and Germany.

These six countries were also included last time, but

South Korea is the only newly added country this time.

What are the criteria for designating a Currency Monitoring Country?

Yonhap News

The U.S. Treasury Department has three criteria for designating currency monitoring countries.

1. A trade surplus with the U.S. exceeding $15 billion (approximately 21 trillion KRW)

2. A current account surplus exceeding 3% of Gross Domestic Product (GDP)

3. Net purchases of dollars for at least 8 months out of 12, with the amount exceeding 2% of GDP

If a country meets all three, it is designated as a currency manipulator.

If it meets two of these criteria, it is designated as a currency monitoring country.

South Korea, in this report, meets criteria 1 and 2,

having a trade surplus with the U.S. exceeding $15 billion and a current account surplus exceeding 3% of GDP, thus being designated as a currency monitoring country.

Simply put, South Korea earns a lot of dollars through trade with the U.S.,

so the U.S. intends to watch closely.

As of June 2024, South Korea's annual current account surplus is 3.7% of GDP,

a sharp increase from 0.2% a year ago, likely due to increased overseas demand for technology-related products.

Additionally, South Korea's trade surplus with the U.S. increased from $38 billion last year to $50 billion.

What impact does this have on South Korea's economy?

Why is there such a sensitive reaction when South Korea is designated as a currency monitoring country by the U.S.?

As mentioned earlier, if a country meets all three criteria, it is designated as a currency manipulator,

which leads to direct economic sanctions from the U.S.

South Korea, included this time as a currency monitoring country, faces no immediate disadvantages,

but there is concern it could be designated as a currency manipulator, a higher level,

which inevitably restricts government intervention in the foreign exchange market.

South Korea says 'It's unfair' about the U.S. designation as a Currency Monitoring Country

Yonhap News

From the U.S. perspective, countries earning many dollars from the U.S. may seem objectionable,

but South Korea has many unfair aspects.

In fact, South Korea did not intend to weaken the won (strengthen the dollar),

and the won's weakness also has significant negative effects on our economy.

First, exchange rates are determined by various factors such as the global economic situation, U.S. monetary policy, and international oil prices,

and when the won weakens,

while South Korea may benefit in exports as the U.S. points out,

import prices rise, leading to inflation.

Especially since South Korea depends heavily on imports for energy and raw materials,

it is highly sensitive to exchange rate changes.

Rising import prices increase domestic consumer prices, worsening the economy for ordinary people and eventually causing domestic demand to stagnate.

Employees are working in the dealing room of Hana Bank in Jung-gu, Seoul, on the 24th, ahead of the release of the 'KRX Korea Value-Up Index' as part of the value-up program to resolve the undervaluation of the domestic stock market by the Korea Exchange. On this day, the KOSPI index opened at 2,612.45, up 10.44 points (0.40%) from the previous session, the won-dollar exchange rate fell by 2.3 won to 1,333.6 won, and the KOSDAQ index opened at 757.37, up 2.25 points (0.30%). Photo by Jo Yongjun jun21@

Another negative impact on our economy is the outflow of foreign investors.

Have you heard of 'Sell Korea'?

Generally, foreign investors tend to sell when the won-dollar exchange rate reaches 1,200?1,300 KRW,

and buy when it falls.

Recently, as the exchange rate surged to around 1,400 KRW, foreign investors have been withdrawing from the domestic stock market.

As a result, Samsung Electronics' stock price once plunged to the 40,000 KRW range.

It's not only foreign investors leaving our stock market.

Domestic individual investors are also moving to the U.S. stock market as KOSPI and KOSDAQ struggle.

The government and financial authorities are desperately trying to defend the 1,400 KRW level, considered the exchange rate's last line of defense and resistance.

However, experts predict it will not be easy for the exchange rate to fall back to the 1,200 KRW range next year.

O Jae-young, a researcher at KB Securities, said, "Due to years of inflation concerns in the market, it is difficult to ease the strong dollar environment for some time. Especially domestically, major economic indicators have started to slow, and the perception of being a victim of the Trump administration's tariff policies is high, so it will be difficult for the exchange rate to fall to the 1,200 KRW range even in 2025."