By Yoon Ja-young
The U.S. Treasury has accused Korea of intervening in foreign exchange markets to artificially lower the value of its currency.
The finance ministry denied the accusation, but admitted that it engages in occasional “smoothing-out” operations.
“The Korean authorities have intervened to resist an appreciation of the won in the context of its large and growing current account surplus, now standing at 6.3 percent of GDP (gross domestic product),” the U.S. Department of Treasury said in its semiannual report.
“Estimates based on valuation-adjusted reserves show that Korean authorities intervened heavily last summer,” says the report. It added that the Korean authorities appear to have substantially increased intervention in December and January, “a time of appreciation pressure on the won.”
“The foreign exchange rate is determined by the market. We only engage in smoothing operations to decrease fluctuation in exceptional cases,” said an official at the Ministry of Strategy and Finance.
“The treasury report has been on a similar note each time,” he said, adding that the report cannot be objective in nature.
“Bear in mind that it isn’t something they officially send to the Korean government. It is a report the U.S. Treasury Department submits to the U.S. Congress,” he said.
Among Asian countries, the report analyzes only four ― China, Japan, South Korea and Taiwan. The official explained that those are the countries with huge trade surpluses with the United States.
With the U.S. economy recovering, Korea’s exports to the United States increased by 13.3 percent last year from the previous year. It is continuing expansion this year, increasing by 17 percent in March, due to a weakening of Korean currency coupled with the U.S. economic recovery. The country’s trade surplus against the United States increased to $25 billion last year from $15.2 billion in 2012.
The U.S. treasury report says, “In the second quarter of 2014, the won appreciated to close to 1,000 on the dollar; it is widely believed that, in response, Korea intervened to prevent appreciation through 1,000.”
A foreign exchange analyst at a futures company in Seoul says market participants can only “estimate” government intervention. “There is no way to know for sure whether it intervened or not. It’s only estimation without proof,” he said.