S. Korea, U.S. Recently Discussed FX Policy, but Not Known to the Public

A high-ranking U.S. government official said on March 27 that the South Korean and U.S. governments reached an agreement on foreign exchange policy while revising their FTA. According to him, the South Korean government is going to minimize an intentional depreciation of the won while enhancing transparency with regard to its intervention in the forex market.

Market participants have predicted that at least some appreciation of the won is inevitable amid U.S. trade pressure. His remarks imply that the South Korean government expressed its will to tolerate a strong won. Under the circumstances, won appreciation is likely to accelerate down the road, posing a burden on South Korean exporters and the government alike.

Controversially, the South Korean government did not mention anything about foreign exchange policy while making an announcement on the results of KORUS FTA and U.S. steel tariffs negotiations. “Exchange rate has nothing to do with the FTA and it was not mentioned during the recent negotiations on the FTA and steel tariff issues,” the Ministry of Trade, Industry & Energy explained.

It is pointed out that the South Korean government should have make an announcement about exchange rate along with the FTA given that both trade and exchange rate are closely interconnected intergovernmental issues. Inha University Vice President Chung In-kyo said that the impact of the negotiations on exchange rate would be significant if the issue was actually a part of the recent negotiations.