Washington kept Seoul on the watch list for its alleged interventions in the currency market and pressured it to disclose details of its currency operations.
No countries including China were labeled as a currency manipulator in the U.S. Treasury Department’s biannual currency exchange report released Friday, which tracks the foreign exchange movements of major trade partners. It releases a review every six months in April and October.
India was newly blacklisted for “close attention” to join South Korea, China, Japan, Germany, and Switzerland.
Korea was accused of “notable and concerning pickup in intervention in November 2017 and January 2018 that appears to have been for the purpose of slowing the won’s appreciation against the dollar.” The report urged authorities to “report its exchange rate intervention in a transparent and timely manner.”
The U.S. government, in settling revisions to the 2012 bilateral free trade agreement with Korea last month, declared it was in negotiation with Seoul to ensure more transparency in its currency operation to level the field on bilateral trade.
Although Seoul initially denied it had made any concessions on the foreign exchange front in connection with the revised FTA deal, deputy prime minister and finance minister Kim Dong-yeon is headed for Washington this week to fine-tune the details on disclosing its currency operation with U.S. Treasury Secretary Steven Mnuchin and International Monetary Fund chief Christine Lagarde on the sidelines of the G20 finance ministers and central bank governors meeting on Thursday.
The U.S. labels a country a currency manipulator if it shows a trade surplus with the U.S. exceeding $20 billion, a current account surplus exceeding 3 percent of the country’s gross domestic product (GDP), and if the government engages in “persistent, one-sided intervention” of net purchasing foreign currency amounting to at least 2 percent of GDP for more than a year.
Korea satisfies two of the three criteria: its trade surplus with the U.S. totaled $23 billion in 2017 and its current account surplus stood at 5.1 percent of its GDP. But its net purchasing of foreign currency was equivalent to 0.6 percent of GDP, well below the 2 percent threshold.
The U.S. estimated that the Korean government had net purchased $10 billion in November 2017 and January 2018, while admitting these purchases were partially reversed through foreign exchange sales in February.
“The IMF continues to describe Korea’s current account surplus as larger, and its exchange rate as weaker, than justified by medium-term economic fundamentals. Further, despite real effective appreciation in 2017 of 3.6 percent, the won is not notably strong compared to levels it has been over the last couple decades,” the report added.
Disclosure of foreign exchange operation could restrict Seoul’s intervention as any move to stabilize the volatile won could have a lesser effect in containing speculative forces.
The won finished Monday down 4.5 at 1,074.00 against the U.S. dollar.
By Cho Si-young and Kim Hyo-jin
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