US adds South Korea to foreign-exchange monitoring watchlist

​U.S. Treasury has placed South Korea on its currency monitoring list, highlighting the nation's foreign exchange practices that warrant closer examination. This decision, outlined in a recent semiannual report, signals increased scrutiny of South Korea alongside other major economies such as Japan and Germany.

The report, which examined currency practices through the end of June 2024, found that no significant U.S. trading partner was manipulating exchange rates to gain an unfair advantage or to obstruct necessary balance of payments adjustments. South Korea's inclusion on the monitoring list stems from its substantial bilateral trade surplus with the U.S. and its noteworthy current account surplus, meeting two out of three criteria established by a 2015 law.

Alongside South Korea, the monitoring list remains populated by several economies, including Japan, Taiwan, Singapore, Vietnam, and Germany. Notably, Malaysia has been removed from the list, reflecting a shift in its foreign exchange practices. The Treasury's findings indicate that Japan, South Korea, Taiwan, Vietnam, and Germany are particularly deserving of enhanced scrutiny due to their significant trade surpluses.

The report comes at a time when the U.S. dollar has been appreciating, driven by speculation regarding the Federal Reserve's monetary policy and rising inflation expectations. This strengthening dollar poses challenges for countries that rely heavily on dollar-priced commodities, including oil, and those with dollar-denominated debt.

The Treasury emphasizes the need for transparency in foreign exchange practices, especially among its trading partners. While being placed on the monitoring list does not carry immediate penalties, it obligates the U.S. administration to engage with these nations to address perceived imbalances in currency management.

This latest report marks a critical moment for South Korea, as it navigates the complexities of global trade and currency dynamics, with implications for its economic policy moving forward.