Seoul: South Korea and the United States have reconfirmed their commitment to avoid manipulating exchange rates and to maintain the stability of the foreign exchange market, as announced by Seoul’s finance ministry. The latest agreement emphasizes the importance of preventing actions that could disrupt the balance of payments or provide unfair competitive advantages.
According to Yonhap News Agency, the Ministry of Economy and Finance of South Korea released details of the agreement, which emerged from recent discussions between the financial authorities of the two nations. These talks have been conducted separately from ongoing trade negotiations and amid discussions about a potential currency swap arrangement with the U.S., intended to support South Korea’s $350 billion investment pledge.
The agreement highlights that both countries will exchange information on foreign intervention operations monthly, a shift from the previous quarterly exchanges. This change aims to enhance communication and monitor developments and stability in the foreign exchange market. The ministry underscored the significance of this agreement in fostering close communication and mutual trust between the financial authorities of the U.S. and South Korea.
Interestingly, similar agreements between the U.S. and other major trading partners, such as Japan and Switzerland, did not include references to foreign exchange market stability. The agreement also stipulates that macroprudential or capital flow measures will not target exchange rates for competitive purposes. Additionally, government investment vehicles from both countries will focus on risk-adjusted returns and diversification rather than targeting exchange rates for competitive purposes.
The agreement does not address the foreign exchange swap of South Korea’s National Pension Service (NPS), which had been highlighted in a U.S. Treasury Department report from June. The report noted concerns over South Korea’s use of NPS funds for exchange rate intervention, which could influence the value of the Korean won. South Korea reappeared on the U.S. watch list for foreign exchange policies in November 2024, after being removed in November 2023 for the first time since 2016.
Jung Yeu-jin, a ministry official, noted that the agreement sets mutual standards for foreign exchange policy with the U.S., suggesting that as long as these standards are maintained, South Korea is unlikely to be labeled a currency manipulator. Another Treasury Department report on the watch list is expected to be released in November.