Korea takes steps to fend off currency manipulator label

The Korean government is taking more aggressive steps to prevent Korea from being labeled as a currency manipulator, including setting up a meeting with the new U.S. Treasury Secretary Steven Mnuchin.

“Not only will we make a call [to Mnuchin] but we will arrange a meeting during the G20 meeting [scheduled to be held next month in Germany],” Korea’s Deputy Prime Minister of Economics and Finance Minister Yoo Il-ho said Thursday.

“We are currently working with our counterparts on the time of meeting,” Yoo added.

The U.S. Senate on Monday confirmed the former Goldman Sachs banker as Treasury Secretary.

“We only make limited adjustments when the foreign exchange market experiences sharp changes,” Yoo said denying a recent report from the Financial Times that Korea and not Japan or China was the actual currency manipulator. “The foreign exchange is decided by the market.”

Yoo said that the Korean government has never considered manipulating the Korean won against the greenback purposely to generate a current account surplus.

He said current account surplus doesn’t necessarily mean it is good. In fact he said the Korean government has long wondered if there was the need to reduce the trade surplus with the U.S.

“Korea is a country with large net savings as the population has been aging rapidly and because of it the current account balance record surplus,” Yoo said. “And because of it, it is shown [as being weakened] against the U.S. dollar, which is a key currency.”

The Ministry of Strategy and Finance and the Bank of Korea sent a joint statement to FT’s headquarters and its office in Japan on Wednesday stating that the claim made by the Finance Minister that there were no purposeful manipulation of the Korean won to keep its value weakened and that the principle is to leave the foreign exchange to the market’s decision.

The Korean government asked the publication to take caution when reporting.

FT on Monday published an article by Robin Harding titled “Donald Trump’s anger at Asian currency manipulators misses target.”

The article quoted Brad Setser, a former Treasury economist under the Obama administration and now a senior fellow at the Council of Foreign Relations, saying Korea and Taiwan were the only two countries that actively participated in keeping currencies from appreciating and Singapore to a certain level.

The article said Japan has not engaged in such activities since 2011 while China was more focused on trying to strengthen its currency value rather than weakening it.

Also as evidence of the Korean government’s intervention the article cited the current account surplus nearing 8 percent of the gross domestic market, which is relatively higher than the 3 percent of China’s and Japan’s.

The article comes amid growing concerns over a major crisis speculated to rise in April when the U.S. Treasury Department announces its foreign exchange policies of major trading partners report is released.

Last year, Korea landed on the watch lists of the U.S. Treasury Department after meeting two of the three criteria. Korea’s bilateral trade surplus with the U.S. exceeds $20 billion and its current account surplus surpassed 3 percent of GDP. The other criterion is the net purchase of foreign currency totaling more than 2 percent of GDP.

In the past those that were labeled as currency manipulators were faced only with indirect restrictions such as warnings. However, since the Bennet-Hatch-Carper amendment was ratified last year allows the U.S. government to take “enhanced engagement” with the manipulators such as limiting new investments from U.S. companies or excluded from U.S. government contracts.

Some of the government officials have raised speculations over Japan’s influence on the paper considering FT was acquired by Japan’s media group Nikkei in July 2015.

“It would have been fine if Japan was denied [currency manipulation] but [the article] suggested Korea and Taiwan as manipulators,” said a government official. “We think that the article has reflected too strongly of Japan’s view.”

Since U.S. President Donald Trump has pointed to China and Japan as manipulating currencies in benefiting in trade with the U.S. this month, the Japanese government has been aggressively convince Trump that it wasn’t.

Japanese Prime Minister Shinzo Abe was the first and only Asian leader to have met with Trump since the former real-estate mogul won the U.S. presidential election.

The first visit took place in November before Trump was sworn into office and the next took place 10 days after Trump accused China and Japan of making American fools.

Since his visit, Abe has told Japanese lawmakers that Trump shared his view that the monetary policy enacted by the Japanese government was not currency manipulation but rather targeted at ending its deflation.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]