The U.S. Treasury said on the 29th (local time) that it placed 10 countries, including Korea and Japan, on its "currency monitoring list." This follows designations as a currency monitoring list in Nov. 2024 and in June last year.
In a report evaluating the currency policies of major trading partners from July 2024 to June last year, the U.S. Treasury said, "The further weakening of the won in the second half of last year does not align with Korea's strong economic fundamentals." This wording was not included in the reports from the year before last and last year, it said. A government official said this suggests "the U.S. Treasury's view that it is not appropriate for the won to move excessively in a one-way weakening."
Since 2016, the U.S. Treasury has released twice-yearly evaluations of the currency policies of the top 20 countries with the largest trade volumes with the United States. A country is placed on the currency monitoring list if it meets two of the following three criteria: a trade surplus with the United States of $15 billion or more; a current account surplus equal to 3% or more of gross domestic product (GDP); and net purchases of dollars in at least 8 out of 12 months totaling 2% or more of GDP. Korea meets two of the criteria except for the last one.
Being placed on the currency monitoring list does not mean U.S. sanctions. However, it does mean that the United States closely examines Korea's currency policy. If all three criteria are met, a country is designated a currency manipulator and can face sanctions. The U.S. Treasury currently has no country designated as a currency manipulator.
In this year's currency report, the U.S. Treasury evaluated Korea's foreign exchange policy over the equivalent of five A4 pages. Last year it was about a page and a half, so the evaluation lengthened. The U.S. Treasury said, "Despite a current account surplus and a trade surplus with the United States, the won is under persistent depreciation pressure," adding, "the foreign exchange authorities were net sellers of foreign currency during the reporting period." It also said, "The National Pension Service's purchases of foreign currency are being carried out for the purpose of diversifying overseas investments."
The U.S. Treasury analyzed the main cause of last year's won weakness as capital outflows from the private institutional sector. It added, "According to the Bank of Korea, the private institutional sector's capital outflows stemmed from an 'unique phenomenon' of individual investors buying foreign stocks." It continued, "Government fund flows shifted to inflows in the fourth quarter of 2024, when political uncertainty in Korea was extreme, easing depreciation pressure on the won."
The U.S. Treasury also said, "Korean households and institutions tend to redirect a large share of savings overseas relative to gross domestic product (GDP) due to the high control of family-run conglomerates, limited dividends, and low price-to-book ratios (PBR), and this creates depreciation pressure on the won."