Bank of Korea Gov. Rhee Chang-yong speaks during a press conference on the IMF’s Monetary Policy and Financial Stability in Inflationary Times, during the IMF/World Bank Group Spring Meetings at the IMF headquarters in Washington, D.C., Wednesday. AFP-Yonhap
Speculation is mounting over the unexpected, last-minute inclusion of exchange rate policy in the upcoming “July Package” trade negotiations, which are aimed at mitigating the impact of U.S. tariff shocks, market watchers said Sunday.
Many say the U.S. is seeking the Korean won’s appreciation ahead of the release of the U.S. Treasury Department’s semiannual currency report in the first half.
This move leverages months of a weak Korean currency relative to the U.S. dollar, the global reserve currency, as a key bargaining chip for Korea to address its sustained trade surplus with the U.S.
Others say the won’s loss of ground against the dollar was driven by political uncertainties, amplified by former President Yoon Suk Yeol’s Dec. 3 martial law declaration and the ensuing impeachment proceedings.
This bolsters the argument against intentional market intervention by the Korean foreign exchange (FX) authorities.
Bank of Korea Gov. Rhee Chang-yong said in Washington, Friday (local time), that the inclusion suggested by Treasury Secretary Scott Bessent has “a positive aspect,” since the Treasury has a deep understanding of exchange rate dynamics and is aware of Korea’s efforts to limit further won depreciation.
Rhee is on a trip to Washington for a meeting of G20 finance ministers and central bank heads as well as International Monetary Fund and World Bank spring meetings.
One U.S. dollar is currently worth more than 1,400 won, a far more extreme level than September 2023 when it was around 1,307 won.
According to economic policy and FX authorities, the inclusion could serve as a pretext for gaining the upper hand in negotiations over tariffs, economic security and investment cooperation.
A weak currency provides a significant price advantage for Korea, as it allows the country to sell its goods more cheaply in the global market, where it has long thrived as an export-dependent economy.
The U.S. may revisit the issue of the weak currency yet again amid the ongoing tariff threats.
Korea was added to the U.S. monitoring list in November 2023 for meeting two of the three criteria.
Countries are placed on the list if they have a current account surplus of over $15 billion with the U.S., or if their current account surplus exceeds 3 percent of the country’s GDP.
These countries will also be on the list if their FX authority net buys U.S. dollars for at least eight out of 12 months, with the total amount purchased exceeding 2 percent of GDP.
Korea is almost certain to remain on the list in the upcoming report, set to be released around June.
Its trade surplus with the U.S. stood at around $66 billion as of the end of 2024.
Korea’s current account surplus is expected to be about 5.3 percent of GDP.
Concerns linger that the U.S. might designate China as a currency manipulator again, as it did in 2019.
This could cause a spillover effect in Korea, manifesting as a drop in the value of its currency, which typically moves in sync with the Chinese yuan. A deeper economic downturn in the Korean economy, influenced by China’s slowdown, is also likely.
Meanwhile, Rhee said that U.S. Treasury officials will have a better understanding of the recent months of sharper won depreciation in the context of Korea’s political turmoil.
“The simple level of the won is far lower than what politics and other factors can explain,” he told reporters in the U.S. capital.
“The Treasury officials understand this technically, and will have a discussion with their Korean peers, with political overtones removed.”
Value context and insight. lkm@koreatimes.co.kr
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