The U.S. Treasury Department has kept South Korea on its watch list for the fourth consecutive time since the second half of 2024's currency report. Being on the watch list indicates that while immediate economic sanctions are not forthcoming, the U.S. is closely monitoring the country. Additionally, there are analyses suggesting that the one-sided depreciation of the won does not align with South Korea's economic fundamentals.
According to the Ministry of Economy and Finance on July 24, the U.S. Treasury released its 'Macroeconomic and Foreign Exchange Policies of Major Trading Partners' report on July 23 (local time). This report evaluates the macroeconomic and exchange rate policies of the top 20 trading partners with the U.S. for 2025.
The U.S. Treasury stated that there are no countries requiring in-depth analysis in this report. A country is classified for in-depth analysis if it meets three criteria: a trade surplus with the U.S. of over $15 billion, a current account surplus exceeding 3% of GDP, and foreign exchange market intervention. The results for the watch list classification remained the same as those announced in January.
South Korea meets two of the three criteria: a trade surplus with the U.S. and a current account surplus. As a result, it has been included on the watch list for four consecutive reports since the second half of 2024.
In the report, the U.S. Treasury assessed that 'exports have supported a slowdown in growth' for the South Korean economy. It noted a significant increase in the current account surplus, particularly driven by semiconductors and technology-related products. While imports of automobiles have decreased, the trade balance with South Korea remains more than double compared to ten years ago, despite a year-on-year decline.
Despite the substantial surplus in the external sector, the U.S. Treasury indicated that pressure on the won's depreciation continues. Earlier, in its January report, the Treasury stated that 'the recent weakness of the won does not align with the strong fundamentals of the South Korean economy.' This phrase was reiterated in the current report. It also analyzed that household and corporate investments in overseas stocks at the end of last year were a primary cause of the depreciation pressure on the won.
Additionally, the report included evaluations of proposals to ease foreign participation in the local foreign exchange market and the National Pension Service's new framework.
A Ministry of Economy and Finance official stated, 'We will continue to communicate closely with the U.S. Treasury to enhance mutual understanding and trust regarding the foreign exchange market,' adding, 'We will maintain cooperation to stabilize the foreign exchange market.'
* This article has been translated by AI.
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