Korea's financial authorities appear ready to disclose the details of their intervention in the foreign exchange market. If realized, the disclosure would be the first such move since Korea opened the forex market in 1962, and would affect the currency market considerably.
Financial authorities here have claimed they let the exchange rate move freely in the market while engaging in “smoothing operations” when the rates moved extremely and one-sidedly. Their lack of transparency caused some misunderstanding in the international community, however. The International Monetary Fund and the United States suspected Seoul intervened in the currency market in a “specific direction” to keep its current account in surplus.
Last year, the U.S. fell short of designating Korea as a currency manipulator but kept Seoul on its “monitoring list” for currency practices.
The government's move is timely as the U.S. Treasury Department is set to release its semiannual currency report next month. It will help boost the transparency of Korea's foreign exchange policy and dispel suspicion among foreigners about Seoul's control of the forex market.
The decision is also inevitable if Korea is to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP), an 11-nation free trade bloc led by Japan and Canada after the U.S. withdrew from the Trans-Pacific Partnership. The CPTTP obligates its members to disclose records of foreign exchange intervention. That also explains why its existing members, such as Vietnam, Singapore and Malaysia, have vowed to reveal their records. Any further reluctance will downgrade the transparency of Korea's financial policy to that of China.
At stake is how to minimize adverse effects. Financial authorities should be doubly alert against the possibility of currency speculators abusing the disclosed information. Unlike advanced countries which disclose records one to three months after taking steps, Seoul must extend the time difference to the maximum.
Above all, the authorities should not let disclosures erode their capacity to stabilize the market. They also ought to change their strategy and tactics for intervening in the market. Disclosure of records is for enhancing credibility, not benefiting speculators.