Korea remains on U.S. currency monitoring list, trade surplus cited

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Korea remains on U.S. currency monitoring list, trade surplus cited

Published: 18 Jun. 2023, 17:33

An employee sorts out dollars at Hana Bank’s Counterfeit Notes Response Center in central Seoul on June 5. [YONHAP]

The United States has kept Korea on a list of countries on its currency monitoring list, advising Korean authorities to avoid currency interventions except in extraordinary circumstances.

China, Germany, Malaysia, Singapore, Switzerland and Taiwan were also included on the list, while Japan was removed, according to the U.S. Department of Treasury on Friday.

The list was established to monitor the currency practices and policies of major trading partners.

Korea has been on the list since April 2016, except for a brief respite in the first half of 2019.

Countries that meet at least two of three criteria — a bilateral trade surplus of over $15 billion with the United States, a material current account surplus of more than 3 percent of a country’s GDP, or persistent one-sided intervention in the foreign currency market — are named on the list.

Korea met just one of the criteria, namely, its $37 billion trade surplus with the U.S. However, it was kept on the list for meeting at least two criteria in the last report.

Korea reported net foreign exchange sales of $46 billion (2.7% of GDP) in the spot market over the four quarters ending in December 2022 as Korean officials intervened to curb the won’s depreciation amid the global strengthening of the U.S. dollar, said the U.S. Treasury Department in the report.

“Treasury estimates that the Korean authorities sold foreign exchange at increasing amounts throughout the first three quarters of 2022 in line with increasingly rapid won depreciation over the course of the year,” it added. “Most intervention by U.S. trading partners was in the form of selling dollars, actions that weaken the dollar and strengthen their currency."

It added, "Korea should limit currency intervention to only exceptional circumstances of disorderly foreign exchange market conditions."

The won depreciated in 2022, weakening 5.7 percent against the dollar. Since weakening sharply in September and October last year, the won appreciated 9.8 percent against the dollar from the end of September 2022 through the end of March 2023 as dollar strength moderated.

The financial regulators announced measures in February to improve the operations of — and access to — the foreign exchange market by expanding trading hours to 2 a.m. from the current 3:30 p.m. The financial authorities also plan to allow registered foreign institutions to directly take part in the wholesale exchange market as early as next year.

The department noted China requires the Treasury’s “close monitoring,” for its failure to publish foreign exchange interventions and for a broader lack of transparency around key features of its exchange rate mechanism.

Once on the list, a country remains for at least two consecutive reports in a bid to help ensure that any improvement in performance is durable and is not due to temporary factors.

BY JIN MIN-JI [jin.minji@joongang.co.kr]