The US Department of the Treasury added South Korea to a “monitoring list” for foreign exchange practices that includes Japan and Germany, and reiterated its criticism of China’s lack of transparency with regard to managing its currency.
In its semiannual foreign exchange report released on Thursday, the Treasury also concluded that “no major US trading partner manipulated the rate of exchange between its currency and the US dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.”
The last time the Treasury designated a country as a manipulator was in 2019, under then-US president Donald Trump, when it put the label on China. The tag was dropped five months later as a bilateral trade deal was negotiated. Thursday’s is the last report under the administration of US President Joe Biden.
Photo: Ahn Young-joon, AP
The economies on the Treasury’s monitoring list were mostly unchanged from the previous release in June, and include Taiwan, China, South Korea, Japan, Germany, Singapore and Vietnam. Malaysia, which was in June’s report, was dropped in the latest one.
When a trading partner meets two of three criteria under a 2015 law, it is placed on the monitoring list for “enhanced analysis.”
South Korea was added after meeting two of the criteria, with a significant global current-account surplus and its bilateral surplus with the US, a Treasury official said.
The South Korean finance ministry declined to comment.
The won slipped as much as 0.5 percent in trading early yesterday.
The general stance of policymakers is that the exchange rate is determined by the market, but steps, or so-called “smoothing operations,” can be taken on excessive volatility. In April, South Korean authorities issued a rare warning to market participants after the won briefly weakened to a key level.
Thursday’s report covers the four quarters through June.
More recently, the US dollar has been climbing amid rising doubts about how low the US Federal Reserve would take its benchmark interest rate next year.
Expectations for faster inflation under Trump’s incoming administration, thanks in part to tariff increases, have added further impulse to the greenback this month.
That appreciation has put major strains on net importers of US dollar-priced commodities such as oil, as well as on those countries bearing US dollar-denominated debt.
While the congressionally mandated report is designed to pressure trading partners perceived to be artificially holding down their exchange rates for competitive advantage, the strong US dollar has meant that interventions around the world lately have been designed to prop up local currencies.
The Treasury reiterated its call for greater transparency in Beijing’s exchange-rate policy.
“China’s failure to publish foreign exchange intervention and broader lack of transparency around key features of its exchange rate policy make China an outlier among major economies and warrant Treasury’s close monitoring,” the department said.
A manipulator designation has no specific or immediate consequence, but the law requires the administration to engage with those trading partners to address the perceived exchange-rate imbalance.
Penalties, including exclusion from US government contracts, could be applied after a year.
In Taipei, the central bank yesterday said it has carried out its duty in line with the US recommendations that it should closely monitor non-bank financial sector risks, including foreign exchange risks.
It agreed that foreign exchange interventions should be limited and allow currency movements in line with economic fundamentals. The central bank stepped in this year mostly in support of the local currency, rather than slow its rise.
Additional reporting by Crystal Hsu
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