Seoul: South Korea and the United States have reaffirmed a fundamental principle to avoid manipulating exchange rates and to monitor the "stability" of the foreign exchange (FX) market, as announced by Seoul's finance ministry.
According to Yonhap News Agency, the two countries agreed to refrain from manipulating exchange rates or the international monetary system to prevent effective balance of payments adjustment or to gain an unfair competitive advantage. This agreement was released by the Ministry of Economy and Finance and was reached during the latest series of talks between the financial authorities of the two nations. These discussions were separate from ongoing trade negotiations and amid speculation about a currency swap arrangement with the U.S., serving as a safeguard for South Korea's $350 billion investment pledge under a framework trade deal reached in late July.
The document released by the ministry highlighted that both countries commit to exchanging information on any foreign intervention operations on a monthly basis, as part of their continued efforts to enhance communication and monitor foreign exchange market developments and stability. Previously, such information was exchanged on a quarterly basis. The ministry emphasized the significance of the latest agreement, as it reaffirms the importance of close communication and mutual trust between the financial authorities of the two countries in ensuring foreign exchange market stability.
Unlike similar agreements recently reached by the U.S. with other major trading partners such as Japan and Switzerland, the agreement with South Korea uniquely includes a reference to the stability of the FX market. "Only our agreement includes a reference to stability," said Jung Yeu-jin, a ministry official, highlighting that it reflects Washington's recognition of South Korea's economic stability as an important factor.
Seoul and Washington also agreed that any macroprudential or capital flow measures will not target exchange rates for competitive purposes. Furthermore, government investment vehicles will invest abroad only for risk-adjusted return and diversification purposes, and not to target the exchange rate for competitive purposes.
The agreement does not explicitly mention the foreign exchange swap of the National Pension Service (NPS), which has been a point of concern in trade negotiations with Washington. The U.S. Department of the Treasury had kept Seoul on its list of countries to be monitored for their foreign exchange policies in its latest report released in June. The report cited the growing foreign assets of the NPS and its $65 billion swap line with the Bank of Korea and other financial authorities, suggesting it could potentially be viewed as a tool for currency intervention.
Although South Korea is not designated as a currency manipulator, it has remained on the monitoring list since November 2024. "Since the agreement sets mutual standards for foreign exchange policy with the U.S., it can be interpreted to mean that as long as these standards are upheld, South Korea is unlikely to be designated a currency manipulator," Jung stated regarding the latest agreement with Washington.
A follow-up Treasury Department report on the watch list is scheduled to be released in November.