US Re-designates South Korea as Foreign Exchange Monitor; Ministry of Economy and Finance Says "Exchange Rate Consultations to Proceed Closely"

[Field News = Reporter Tae Gi-won] The United States has re-designated South Korea as a foreign exchange monitor. 

In the semi-annual report titled 'Macroeconomic and Foreign Exchange Policies of Major Trading Partners' submitted to Congress on the 5th (local time), the US Treasury designated nine countries, including South Korea, China, Japan, Singapore, Taiwan, Vietnam, Germany, Ireland, and Switzerland, as foreign exchange monitors. 

In accordance with the Trade Facilitation Act enacted in 2015, the United States evaluates the macroeconomics and foreign exchange policies of the top 20 trading partners and designates them as either "countries of concern" (monitoring) or "countries of intensive analysis" if they meet certain criteria.

South Korea had maintained its status as a foreign exchange monitor since April 2016, before being excluded from the list for the first time in November 2023. However, it was included again last November ahead of the inauguration of the Trump administration, and has now been re-designated once more. 

In this report, the number of countries increased to a total of nine as Ireland and Switzerland were newly included.

The criteria for designation as a foreign exchange monitor include: △a trade surplus with the US of $15 billion or more, △a current account surplus exceeding 3% of Gross Domestic Product (GDP), and △net dollar purchases in the foreign exchange market for at least 8 out of 12 months, with the amount exceeding 2% of GDP. 

If two of these requirements are met, a country is designated as a monitor; if all three are met, it is designated as a country of intensive analysis.

South Korea was designated as a monitor due to issues regarding its trade surplus and current account surplus, similar to last November.

The Treasury explained that South Korea's current account surplus increased to 5.3% of GDP in 2024, up from 1.8% the previous year.

The main reason is the increase in South Korea's goods trade surplus; South Korea's trade balance with the US, including goods and services, rose significantly to $55 billion in 2024 from $14 billion the previous year.

The Treasury noted that South Korean authorities intervened in the foreign exchange market in April 2024 and December 2024 to respond to excessive volatility while the won was under depreciation pressure, and stated that South Korean authorities net sold $11.2 billion, equivalent to 0.6% of GDP, in 2024.

Additionally, it wrote that South Korea should limit foreign exchange interventions as exceptional circumstances due to disorderly foreign exchange market conditions in the future.

This exchange rate report drew even more attention as it is the first report following the inauguration of the Trump administration.

The Trump administration has shown a stance that it may address exchange rate issues in trade negotiations for countries with unfair exchange rate policies.

The next US exchange rate report is expected to be released around October or November.

The Ministry of Economy and Finance stated in a press release that day, "The South Korean government will continue to expand mutual understanding and trust regarding exchange rate policies through regular communication with the US Treasury," adding, "We also plan to proceed closely with the ongoing exchange rate consultations between the South Korean and US financial authorities."