U.S. keeps South Korea on currency monitoring list, citing 'won's weakness not aligned with fundamentals'

The U.S. Treasury Department has placed South Korea on its list of countries under currency monitoring for the fourth consecutive period, reiterating its stance that the recent depreciation of the South Korean won is inconsistent with the nation's robust economic fundamentals.

In its semi-annual report to Congress on the macroeconomic and foreign exchange policies of major trading partners, the U.S. Treasury identified 10 countries, including South Korea, China, Japan, Taiwan, Singapore, Vietnam, Germany, Ireland, Switzerland, and Thailand. While this designation does not trigger immediate sanctions, it signals increased U.S. oversight of South Korea's currency management and opens the door for further dialogue between the two nations.

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The recent weakening of the South Korean won does not align with the country's strong economic fundamentals.

South Korea was previously removed from the monitoring list in the latter half of 2023 but was reinstated in the report for the latter half of 2024, marking its fourth consecutive inclusion. This return is attributed to meeting criteria related to trade surplus and current account surplus. The Treasury noted that South Korea's current account surplus is projected to widen from 5.3% of GDP in 2024 to 6.6% in 2025, primarily driven by its trade in goods, particularly semiconductors and other technology products.

The U.S. Treasury evaluates major trading partners based on three criteria: a trade surplus with the U.S. exceeding $15 billion, a current account surplus greater than 3% of GDP, and sustained, one-sided intervention in the foreign exchange market (net dollar purchases exceeding 2% of GDP for at least eight months). South Korea did not meet the intervention criterion, as its foreign exchange market intervention was -1.5% of GDP, indicating net dollar sales rather than purchases. The Treasury also pointed to the continued downward pressure on the won, despite large external surpluses, as a factor in its assessment, re-emphasizing its January assessment that the won's weakness did not align with economic fundamentals.

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The U.S. Treasury's recognition of the situation that the won's excessive movement in a one-sided weakening direction is not appropriate has been reaffirmed.