US Treasury keeps Korea on currency manipulation watchlist
Washington signals potential broadening of forex monitoring policy, raising concerns in Seoul over the roles of public funds
South Korea remained on the US Treasury Department's currency-monitoring watchlist updated Thursday, signaling heightened scrutiny over potential currency manipulation accusations.
The US Treasury issued the Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States report, maintaining Korea on the monitoring list for extra foreign exchange scrutiny.
Korea was first added to the watchlist in April 2016. It was dropped from the list in November 2023 but was reinstated in November 2024.
The semiannual currency report assesses the trade balances and currency practices of major US trading partners.
Countries are automatically placed on the monitoring list if they meet at least two of three conditions: a bilateral trade surplus with the US of at least $15 billion, a current account surplus exceeding 3 percent of gross domestic product, and forex market intervention — in other words, persistent net purchases of foreign currency.
Korea remained on the watchlist for posting a $55 billion trade surplus with the US and recording a current account surplus equivalent to 5.3 percent of its gross domestic product.
It did not meet the threshold for forex market intervention, as it had intervened in the market to strengthen the Korean won in 2024 by selling the greenback instead of purposely weakening the local currency.
'Korean authorities reported net sales of $11.2 billion for all of 2024, approximately 0.6 percent of GDP and concentrated in the second quarter of the year,' the report stated.
The US Treasury warned against any form of market intervention in the report, underpinning, 'Korea should continue to limit currency intervention to exceptional circumstances of disorderly foreign exchange market conditions.'
The currency report, issued for the first time since US President Donald Trump took office, was expected to provide insight into the US administration's stance on exchange rates.
As anticipated, the US Treasury signaled plans to enhance its scrutiny of trading partners' currency policies and practices in future assessments.
It indicated that it may begin monitoring not only traditional forms of foreign exchange intervention but also other tools that could influence exchange rates for competitive advantage, including the use of capital flow management measures, macroprudential policies and activities by government-affiliated investment vehicles such as pension funds or sovereign wealth funds.
This expanded scope raises potential concerns for Korea, where major institutional investors such as the National Pension Service, one of the largest pension funds in the world, and the sovereign wealth fund Korea Investment Corporation, play a significant role in cross-border capital flows.
The state-run fund operators are major buyers of dollars on the forex market. When making foreign investments, they buy dollars, which adds pressure on the buying side of the greenback, consequently strengthening the dollar and weakening the Korean won.
Though both funds do not share their asset allocation by country, significant portions of the NPS and the KIC's investments are tied to the US.
As of December, the NPS holds assets worth roughly $210 billion in the North American stock markets and $30 billion in US bonds, while the KIC operates assets amounting to approximately $125 billion in US shares.
Since the US flagged forex policy as a discussion item in trade talks in April, market watchers have speculated that the role of the NPS could become a touchy subject in policy discussions with the country.
'The NPS tripled its advance FX purchase limit to $3 billion from $1 billion per month in September 2024 and expanded its swap arrangement with the Bank of Korea from $50 billion to $65 billion in December 2024,' the report stated, explaining the pension fund operator can borrow dollars from the central bank's reserve for overseas investment.
The Finance Ministry announced it will continue communicating with the US Treasury to deepen bilateral understanding.
"The Korean government will continue to strengthen mutual understanding and trust on foreign exchange policy through communication with the US Treasury,' the Finance Ministry stated through a press release.
"Ongoing forex negotiations between the financial authorities of Korea and the US will be carried out carefully and thoroughly,' the ministry stated, referring to the trade talks between Seoul and Washington.
Along with Korea, eight other countries, including China, Japan, Singapore, Taiwan, Vietnam and Germany, were on the monitoring list, with Ireland and Switzerland newly added. The US Treasury further stated that no major trading partner was found to have manipulated its currency in 2024.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Korea Herald
a day ago
- Korea Herald
Political uncertainty falls below pre-martial law levels: BOK
The level of political uncertainty in South Korea has returned to levels seen prior to the martial law incident, following the recent presidential election, the central bank said Friday. According to data submitted by the Bank of Korea to Rep. Cha Gyu-geun of the Rebuilding Korea Party, the political uncertainty index stood at 1.5 as of June 4, the day after the election, in which Democratic Party candidate Lee Jae-myung defeated conservative rival Kim Moon-soo. The index, which had been around 0.4 in early December, spiked to a record high of 12.8 in mid-December, following former President Yoon Suk Yeol's surprising declaration of martial law on Dec. 3. Though the index rose slightly above 1 after the election, the BOK noted that such minor fluctuations are common in normal times and should not be interpreted as meaningful. The index is compiled by the BOK's research department by tallying the number of media articles that include both the keywords "politics" and "uncertainty" in their headlines or main text. It reflects relative values, with the long-term average from the beginning of 2000 set at zero, the BOK said. The previous record high was 8.8, recorded on March 17, 2004, following the passage of the impeachment motion against the late former President Roh Moo-hyun. The economic uncertainty index also fell to 1.2 as of June 4, a level similar to the 1.1 recorded on Dec. 3. The index had surged to 5.4 on Jan. 2 but gradually declined, reaching as low as 0.5 on May 15, the BOK said. "The political uncertainty that has weighed on the economy over the past six months is expected to ease significantly," BOK Gov. Rhee Chang-yong said at a press briefing last week. "Political factors are no longer having a meaningful impact on the won-dollar exchange rate." The Korean won had weakened sharply earlier this year, nearing 1,500 won per US dollar, largely due to the domestic political turmoil and concerns over the sweeping tariff measures under US President Donald Trump's administration. But it rebounded to its strongest level in about seven months Thursday, closing at 1,358.4 won per dollar. (Yonhap)
Korea Herald
a day ago
- Korea Herald
Bills to probe Yoon, wife pass National Assembly
Bill on suspected interference in investigation of Marine's death also passed; Presidential office says 'there is very little reason' to veto them The ruling Democratic Party of Korea-controlled National Assembly on Thursday passed contentious bills mandating special counsel probes into charges and scandals surrounding former President Yoon Suk Yeol and his wife, Kim Keon Hee. Three probe bills reintroduced by the Democratic Party were approved during a parliamentary plenary vote held in the afternoon. One pushes to launch a permanent special counsel to investigate 11 charges tied to Yoon's failed martial bid in December; another seeks to mainly investigate Kim's alleged inappropriate interference in the People Power Party's candidate nomination process in previous general and by-elections as well as her luxury bag scandal; the third looks into the allegations that the Yoon administration interfered in the military's investigation into a young Marine's death in 2023. All three bills were passed in a 194-3 vote with one abstention, in a package deal. The move came a day after President Lee Jae-myung, who was the Democratic Party Chair, was sworn into office. He won Tuesday's early election, securing 49.42 percent of the vote against his rival and People Power Party candidate Kim Moon-soo, who saw 41.15 percent. Lee was highly likely to approve and endorse the bills, as an official at the presidential office said, 'there is very little reason' to veto them, with all three 'receiving People's support,' in a press briefing after the plenary vote. People Power Party, which became the main opposition party on Wednesday, highlighted its party line against the passage of the bills ahead of the plenary vote. The majority of the party lawmakers boycotted all three votes. All three bills passed on Thursday had previous versions that were scrapped by former President Yoon's veto power. The bill mandating a permanent special counsel investigation against Yoon will look into 11 different charges tied to his martial law bid, including insurrection and military mutiny. The previous versions of the bill were vetoed and scrapped twice. The latest version expanded the scope of the charges from six to 11. Special counsel candidates will be nominated by the Democratic Party and the minor liberal Rebuilding Korea Party, from the parliament's side. The bill also eases regulations to access presidential archives. It lowers the threshold from the current approval needed from two-thirds of lawmakers or from a high court chief judge to three-fifths of the Assembly or permission from a district court chief judge. The bill concerning the first lady will look into her alleged role in a stock manipulation scandal as well as the inappropriate acceptance of a luxury bag from a Korean-American pastor and election-related scandals involving political broker Myung Tae-kyun. An amendment passed alongside the bills expands the scope of the number of assistant special prosecutors from four to seven and raises the cap on dispatched prosecutors from 40 to 60.
Korea Herald
a day ago
- Korea Herald
Korean shipbuilders suffer 35% drop in orders through May: report
South Korean shipbuilders saw a 35 percent year-on-year drop in new orders from January to May, according to shipping industry tracker Clarkson Research Services on Thursday. During the five-month period, Korean shipbuilders secured a total of 3.81 million compensated gross tonnage, representing 24 percent of the global market — second to China, which led with 7.86 million CGT, or 49 percent. The decline is partly attributed to selective order-taking, as Korea's major shipbuilders — HD Hyundai Heavy Industries, Hanwha Ocean and Samsung Heavy Industries — have prioritized high-value-added vessels such as liquefied natural gas carriers rather than container ships. Their docks are currently occupied with orders scheduled for delivery over the next three years. However, the drop in orders is also reflects a sharp downturn in the global shipbuilding market. Total new global orders during the period fell 45 percent from a year earlier to 15.92 million CGT, raising concerns among some industry observers about the possibility of the current market cycle slowing in the coming years. Industry sources noted that many shipping companies are delaying new orders amid uncertainties in global trade and falling freight rates, driven in part by ongoing geopolitical tensions between the US and China. The Shanghai Containerized Freight Index, a widely used indicator of shipping rates, exceeded 3,000 in June last year but dropped to just over 1,200 in May this year. Although it has seen a sharp rise over the past three weeks, securities firms suggest this is a temporary increase driven by the US' short-term tariff deferral on Chinese goods. As a result, Korean shipbuilders saw a decrease in their backlog, with total outstanding orders falling by 8 percent, or 3.09 million CGT, compared to the same period last year. As of early June, HD Korea Shipbuilding & Offshore Engineering — parent company of HD Hyundai Heavy Industries and two other smaller shipbuilders — had only achieved 38.7 percent of its annual order target of $18 billion. Samsung Heavy Industries had reached 27 percent of its full-year sales goal of $9.8 billion.
