According to a recent Treasury Department report, the United States has once again designated South Korea a currency monitoring country.
On Thursday, the U.S. Treasury Department released its semiannual “Report to Congress on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States.” The report included South Korea among six other nations—China, Japan, Taiwan, Singapore, Vietnam, and Germany—as countries under currency monitoring.
South Korea is the only new addition to this list of seven countries. The trade surplus between South Korea and the U.S. remarkably increased by 31.6%, jumping from $38 billion last year to $50 billion this year. This surge was primarily affected by robust technological sector exports, which intensified the overall goods trade surplus.
By the end of June this year, South Korea’s annual current account surplus ratio had reached 3.7% of its Gross Domestic Product (GDP), an 18.5-fold increase from the 0.2% recorded a year earlier.
The Treasury Department also highlighted the South Korean government’s interventions in the foreign exchange market. From July 2022 to June 2023, South Korea sold a net of $9 billion (equivalent to 0.5% of its GDP) to curb the won’s depreciation.
In light of these actions, the Treasury Department advised that South Korea should limit its currency interventions to exceptional circumstances of disorderly market conditions.
Criteria for Monitoring and South Korea’s Status
Under the Trade Facilitation and Trade Enforcement Act, the U.S. places countries on the monitoring list if they meet at least two of the following criteria:
- A goods and services trade surplus with the U.S. exceeding $15 billion.
- A current account surplus surpassing 3% of GDP.
- Net foreign currency purchases exceeding 2% of GDP.
South Korea has been on this monitoring list since April 2016, with a brief respite in the first half of 2019. It was most recently removed from the list in November 2022.
However, this latest designation signals South Korea’s return to the monitoring list after just one year.
While the previous report only flagged South Korea for its trade surplus, its current account surplus raised concerns.
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