It has been found that the United States Department of the Treasury visited the South Korean Ministry of Strategy & Finance and the Bank of Korea late last month, several weeks before releasing its semiannual report on international economic and exchange rate policies, in order to check whether the South Korean government intervened in the foreign exchange market.
The upcoming report is the first one that follows the implementation of the Bennet-Hatch-Carper amendment. According to it, even trade retaliation measures are to be taken against countries deemed to be manipulating foreign exchange rates.
The report is expected to be released on April 15. In the meantime, South Korean Deputy Prime Minister Yoo Il-ho is about to visit Washington D.C. for the G20 Financial Ministers’ Meeting. He is scheduled to have talks with U.S. Secretary of the Treasury Jacob Lew on April 14 or 15 to explain that South Korea’s recent large current account surplus is somewhat inevitable for the reasons including low international oil prices. In the upcoming report, countries with a large current account surplus, a large trade surplus with respect to the United States, persistent one-sided intervention in exchange rates or the like can be classified as exchange rate manipulators.
The ratio of South Korea’s trade surplus against the U.S. to its GDP was 1.8% as of the end of 2014, lower than China’s 2.3%, Taiwan’s 2.6% and Israel’s 3.3%. Still, South Korea’s current account surplus remained as large as US$84.3 billion in 2014 and US$105.9 billion in 2015 owing to factors such as the low oil prices while most of the current account surplus was derived from the U.S. (US$40.9 billion in 2014) and China (US$56 billion in 2014) amid the slump of the European, Japanese and Middle East economies. Experts point out that the Deputy Prime Minister needs to focus on these points in his explanation.
During its recent visit, the Treasury Department asked the South Korean foreign exchange authorities to hand in specific evidence by month of the absence of forex market intervention. It is said that the request implies the U.S. will apply stricter rules than before in asking for data with the amendment in effect. Any country designated as an exchange rate manipulator has to take corrective measures within a year. Otherwise, trade retaliation follows.