Korea on U.S. currency list again

Korea is one of the six countries being monitored by the U.S. Treasury for possible currency manipulation after meeting two of three conditions.

It is Korea’s sixth time on the list, which is unchanged from the last Treasury report in April. Other countries named are: China, Germany, India, Japan and Switzerland.

According to Treasury report “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States” released Wednesday, Korea’s trade surplus remained above $20 billion, though the surplus has dropped 8 percent from April.

It also noted Korea’s current account surplus was more than 3 percent of the GDP, at 4.6 percent. This is a drop from the 5.1 percent reported in April. Korea wasn’t found to be in violation due to government intervention.

According to the Treasury, government intervention in the foreign exchange market exceeding 2 percent of the GDP would trigger that determination.

“Treasury estimates that between July 2017 and June 2018 Korean authorities made net purchases of foreign exchange of $4.1 billion (0.3 percent of GDP), including activity in the forward market,” the report said. “Net purchases were concentrated in November 2017 and January 2018 (around $9 billion), a period when the won was appreciating both against the dollar and on a real effective basis.”

“Appreciation against the dollar reversed in January, and the won has depreciated roughly 6 percent to date in 2018 against the dollar, while appreciating by 0.2 percent on a real effective basis as of August.”

Although Korea does not yet disclose its market interventions, it has agreed with the U.S. government to do so early next year.

It will be releasing market intervention data every six months from 2019, and starting in 2020, it will be disclosing information every quarter.

On Thursday, Korean Finance Minister Kim Dong-yeon told lawmakers while attending the National Assembly’s annual audit that the government only intervened in the foreign exchange market when fluctuations were huge. The U.S. government noted that while the Korean won has appreciated against the dollar, it isn’t strong enough.

“The IMF [International Monetary Fund] continues to describe Korea’s current account surplus as larger, and its exchange rate as weaker than justified by medium-term economic fundamentals,” the report said. “Despite real effective appreciation over four quarters through June 2018 of 2 percent, the won is not notably strong compared to the levels it has been over the last couple decades.”

Market experts say the U.S. government will likely continue to use the currency manipulation report in negotiations when making efforts to improve the U.S. trade deficit.

“U.S. President Donald Trump continues to push trade partners with large trade surpluses with the United States to strengthen their currencies against the dollar,” said Lim Hye-yoon, an analyst with KTB Investment & Securities. “With the trade conflict continuing, the United States will likely continue using the currency manipulation classification as a negotiation tool in trying to reduce U.S. trade deficits.”

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