Korea Remains on US Currency Monitoring List for Third Consecutive Time... "Cooperation for FX Market Stability"

"Additional Depreciation of the Korean Won Does Not Align with South Korea's Fundamentals,"
US Treasury Makes Unusual Statement

South Korea has been listed for the third consecutive time as a currency monitoring country by the US Department of the Treasury. The decision was based on the view that South Korea's trade surplus with the United States and its current account surplus exceeded the established criteria.

On January 30, the Ministry of Economy and Finance announced that the US Department of the Treasury had classified and published a monitoring list of 10 countries, including South Korea, Japan, China, Germany, and Singapore.

The US Treasury evaluates the top 20 countries with the largest trade volumes every year, both in the first and second half, and designates a country as a currency manipulator if it meets all three criteria: trade surplus with the US, current account surplus, and currency market intervention. If a country meets two of these criteria, it is designated as a monitoring country.

Among these, South Korea maintained its status as a monitoring country, as it met the criteria for a trade surplus with the US (52 billion dollars) and a current account surplus (5.9% of GDP).

However, South Korea did not meet the criterion for currency market intervention (net dollar purchases for more than eight months and exceeding 2% of GDP). Large-scale net dollar purchases can raise suspicions of currency manipulation, as buying dollars in the foreign exchange market increases the value of the dollar, lowers the value of the local currency, and thereby enhances export price competitiveness.

South Korea was removed from the currency monitoring list in November 2023, for the first time in about seven years since April 2016, but was included again in November 2024, prior to the launch of the Trump administration. The country has maintained this status in the report released this time, following the June 2023 report.

In an unusual move, the US Treasury included in this report an assessment that "the additional depreciation of the Korean won in the second half of last year does not align with South Korea's strong economic fundamentals."

Regarding this, the Ministry of Economy and Finance explained, "The US Treasury's statement suggests that the excessive, one-sided weakening of the Korean won since the second half of last year is considered inappropriate."

On the US Treasury's evaluation that efforts to improve the foreign exchange market system will strengthen the resilience and efficiency of the market, the ministry stated, "This reflects the policy, as announced in last year's first half currency report, to assess not only market intervention but also capital inflows and outflows, macroprudential measures, and the use of government investment institutions for competitive devaluation, starting with this currency report."

In its evaluation of government investment institutions, the US Treasury noted that the National Pension Service's foreign currency purchases were made for the purpose of diversifying overseas investments. It also commented that the foreign exchange swap between the National Pension Service and the Bank of Korea helped mitigate the depreciation pressure on the Korean won during a period of increased volatility in the fourth quarter of 2024.

The government stated, "We will continue to communicate closely with the US Treasury and work together to maintain stability in the foreign exchange market."