A South Korean dealer looks at an electronic signboard showing the benchmark Korea Composite Stock Price Index (KOSPI) at the Hana Bank in Seoul, South Korea, 20 July 2026. The KOSPI plunged 304.33 points, or 4.46 percent, to close at 6,516.27 points on 20 July. Photo by JEON HEON-KYUN / EPA
July 24 (Asia Today) — The U.S. Treasury Department kept South Korea on its currency monitoring list for a fourth consecutive report, saying the won’s sustained weakness was inconsistent with the country’s strong economic fundamentals.
The department released its semiannual report on the macroeconomic and foreign exchange policies of major U.S. trading partners Thursday.
The monitoring list includes South Korea, China, Japan, Taiwan, Thailand, Singapore, Vietnam, Germany, Ireland and Switzerland.
All 10 economies were also included in the previous report released in January.
The Treasury Department found that no major U.S. trading partner manipulated its currency to prevent effective balance-of-payments adjustments or gain an unfair trade advantage during the four quarters through December 2025.
It also found that no economy met all three statutory conditions requiring enhanced analysis.
South Korea met two of the three conditions, recording a large trade surplus with the United States and a current account surplus above the required threshold.
It did not meet the third condition involving persistent, one-sided purchases of foreign currency.
Under the Trade Facilitation and Trade Enforcement Act of 2015, enhanced analysis is generally required when an economy records a bilateral goods and services surplus with the United States of at least $15 billion, a current account surplus equal to at least 3% of gross domestic product and net foreign currency purchases equal to at least 2% of GDP over at least eight of 12 months.
South Korean authorities instead sold a net $28 billion in foreign currency during 2025, equivalent to about 1.5% of GDP, as they sought to moderate volatility and depreciation pressure on the won.
About $22.5 billion of those sales took place during the fourth quarter.
Technology exports expand current account surplus
The Treasury Department said South Korea’s current account surplus increased to 6.6% of GDP in 2025 from 5.3% in 2024.
The increase was driven almost entirely by the goods trade surplus, particularly exports of semiconductors and other technology products.
South Korea’s current account surplus also exceeded its average of 5% of GDP during the five years before the COVID-19 pandemic.
The country’s goods and services surplus with the United States declined to $45 billion in 2025 from $54 billion a year earlier, largely because U.S. automobile imports from South Korea fell.
The bilateral surplus nevertheless remained roughly twice the level recorded a decade earlier.
Despite those large external surpluses, the won faced sustained depreciation pressure during the reporting period, the department said.
On Jan. 14, Treasury Secretary Scott Bessent said the won’s recent depreciation was not consistent with South Korea’s strong economic fundamentals and that excessive foreign exchange market volatility was undesirable.
The won weakened sharply toward the end of 2025 before recovering during the final trading sessions of the year.
It strengthened 2.6% from 1,481 won per dollar on Dec. 23 to 1,445 won on Dec. 31 amid reported intervention by South Korean authorities.
Overseas investment adds pressure on won
The Treasury Department said overseas investment by South Korean institutions and households contributed to downward pressure on the currency.
Foreign equity accumulation by South Korean government-related institutions reached $41 billion in 2025, up sharply from $8 billion in 2024.
Those flows included overseas investments by the National Pension Service and were largely unhedged, increasing demand for foreign currencies and adding to depreciation pressure on the won.
Overseas equity purchases by households and non-bank financial institutions created additional capital outflows.
The Treasury Department said the National Pension Service continued to invest abroad for diversification and long-term returns.
It also examined the pension fund’s foreign exchange framework and currency hedging policies, emphasizing that government investment vehicles should not be used to influence exchange rates for competitive purposes.
South Korea and the United States issued a joint statement on foreign exchange policy in September 2025.
The two countries reaffirmed that foreign exchange intervention should be limited to addressing excessive volatility or disorderly market movements and should not be used to gain a trade advantage.
Foreign exchange market reforms welcomed
The Treasury Department welcomed South Korea’s efforts to allow greater participation by foreign institutions in its domestic foreign exchange market.
It said the changes should help improve market liquidity and price discovery over the medium and long term.
South Korea has extended foreign exchange trading hours and relaxed restrictions on registered foreign institutions as part of efforts to improve access to the won market.
The government said it would continue consultations with the Treasury Department to strengthen mutual understanding and confidence regarding foreign exchange policy.
It also said the two countries would continue cooperation aimed at maintaining orderly and stable foreign exchange markets.
South Korea was removed from the monitoring list in November 2023 but returned in November 2024.
It remained on the list in the June 2025, January 2026 and July 2026 reports.
Placement on the monitoring list does not mean the United States has designated South Korea as a currency manipulator.
The designation means the country’s currency practices and broader economic policies will remain subject to closer U.S. scrutiny.
— Reported by Asia Today; translated by UPI
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Original Korean report: https://www.asiatoday.co.kr/kn/view.php?key=20260724010008815
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