US Removes South Korea from Currency Watchlist After 7 Years... Six Countries Including China and Germany Designated (Comprehensive Report 2)

No New Currency Manipulation Countries Designated
Also Points Out Opaque Chinese Market

The U.S. government has removed South Korea from the list of 'currency monitoring countries' for the first time in over seven years. Analysts suggest that this move, made at a time of high exchange rate volatility, will increase the South Korean government's capacity to respond to currency fluctuations.

On the 6th (local time), the U.S. Department of the Treasury excluded South Korea and Switzerland from the list of monitoring countries in its 'Macroeconomic and Foreign Exchange Policies of Major Trading Partners' report submitted to Congress. In South Korea's case, it met only one of the three criteria for designation as a monitoring country (a trade surplus of $38 billion) in the two recent Treasury reviews, leading to its removal from the list.

South Korea had been designated as a currency monitoring country from April 2016 until June of this year. Except for the first half of 2019 (when only one criterion was met), it had been classified as a monitoring country by meeting two criteria, including a trade surplus with the U.S. and a current account surplus.

Under the Trade Facilitation and Trade Enforcement Act enacted in 2015, the U.S. evaluates the macroeconomic and exchange rate policies of its top 20 trading partners semiannually and designates countries as 'comprehensive analysis countries' or 'monitoring countries' if they meet certain criteria.

Specifically, if a country meets two of the following three conditions, it is classified as a monitoring country: a trade surplus with the U.S. exceeding $15 billion, a current account surplus exceeding 3% of its gross domestic product (GDP), or net purchases of dollars in the foreign exchange market exceeding 2% of GDP for at least eight of the past twelve months. If all three conditions are met, the country is designated as a comprehensive analysis country.

Janet Yellen, U.S. Secretary of the Treasury.
Photo by Reuters Yonhap News

The Treasury classified six countries as currency monitoring countries: Vietnam, China, Germany, Malaysia, Singapore, and Taiwan. Among these, China, Germany, Malaysia, Singapore, and Taiwan remained on the monitoring list for the second half of the year, following the first half. Vietnam was re-designated as a monitoring country since the end of 2020 during the Trump administration. This is attributed to the surge in Vietnam's current account surplus to about 4.7% of GDP, driven by the relocation of production bases from China to Southeast Asia as part of the global corporate trend of decoupling from China following the COVID-19 pandemic.

No country was designated as a 'currency manipulator' in this report. The U.S. Treasury stated, "No country was found to have manipulated its currency during the four quarters ending in June this year." It further noted that "Singapore and China, two trading partners with current account surpluses during this period, did engage in net foreign exchange purchases over the four quarters ending in June, but not for the purpose of gaining an unfair competitive advantage in international trade."

However, the Treasury is closely monitoring the Chinese yuan and pointed out a lack of transparency in foreign exchange market interventions. The report stated, "China does not disclose its foreign exchange market intervention activities and lacks transparency in its exchange rate mechanism," and added, "We will continue close monitoring of China."

The Ministry of Economy and Finance assessed that since this change is due to fluctuations in macroeconomic indicators such as the current account balance, the direct impact on South Korea's economy would be limited. However, given the recent increase in external volatility and exchange rate fluctuations, it is expected that the government's management of foreign exchange policy will become easier.

Ahn Seong-bae, head of the International Macroeconomics and Finance Division at the Korea Institute for International Economic Policy (KIEP), said, "Being a monitoring country means simply being under observation, so there was no pressure from the U.S. on South Korea, but it is significant that the risk of being designated as a currency manipulator has decreased." He added, "This is largely due to the reduction in the current account surplus, but it can also be interpreted as a result of the government's continuous efforts to enhance transparency in the foreign exchange market." Ahn further noted, "This reduces some risk during periods of rapid exchange rate changes," and emphasized, "The government has secured the capacity to implement foreign exchange policies in response to sudden exchange rate fluctuations."

This content was produced with the assistance of AI translation services.