By Kim Yoo-chul
The Trump administration refrained from designating any of its key trading partners as “currency manipulators,” Saturday (KST). The U.S. Treasury said that Korea remained on its “monitoring list,” unchanged since the country was put on it in 2016
The report didn't mention currency negotiations between Korea and the U.S. that were announced alongside an update to their free trade agreement (KORUS FTA). An agreement was reached to for Seoul to make its interventions on the foreign exchange transparent; and the U.S. Treasury said Korea should “promptly begin reporting” such data.
Economists and industry executives here seemingly understood a “recommendation” by the U.S. Treasury for the country to take steps to bolster domestic demand to lower its current account surplus and trade surplus with the United States, as “rare” and an issue of “currency sovereignty.”
The government said it has been consistent in letting the market itself determine exchange rates and this policy won't be changed “too much,” meaning any radical and repeated interventions are unlikely.
“If it's true that Seoul was making currency interventions in order to influence the value of the won, this is an issue of monetary or currency sovereignty, because disclosing details of market interventions shouldn't be an issue for negotiations between countries,” said Korea International Finance Association Chairman Chae Hee-yul.
A senior foreign exchange trader at a U.S.-based investment bank in Seoul said the recommendation by the U.S. Treasury was in part due to its view that the won was undervalued. “Once the Bank of Korea discloses the details of its interventions, then the volatility of the Korean won will continue to be higher,” he said.
The U.S. Treasury estimated that Korea bought $10 billion worth of foreign exchange reserves from November 2017 to January 2018, and stated that Seoul “should limit currency intervention to only truly exceptional circumstances of disorderly market conditions.”
Such worries were already factored into the government's foreign exchange market, and the question is how much debate on this issue will actually matter for the dollar/won rate.
Morgan Stanley, a major investment bank, said the administration has intervened “verbally” recently to remind the market of its role in preventing excess volatility. “The volatility of the Korean won continues to persist due to ongoing global trade tension and as the U.S.-North Korea summit approaches,” it said in a report to clients Sunday.
The won fell 0.9 percent against the dollar last week and was the biggest weekly underperformer in the Asia-Pacific region. “Until global trade tensions settle, we continue to see the Korean won oscillating between 1,060 won and 1,080 won,” the bank said.
The country's finance minister Kim Dong-yeon will address this issue in a series of meetings with key executives at the International Monetary Fund and the World Bank, as well as G20 finance ministers, later this week.
Kim recently told reporters he will hold thorough discussions with his counterparts to decide on the frequency of publicizing details of currency interventions.
“According to the latest findings, disclosure frequency differs from day-to-day, month-to-month and quarter-to-quarter. Among Trans-Pacific Partnership member countries, some of them disclose the details of market interventions every six months. Korea will look into this,” the minister said.