Korea will be able to better stabilize its foreign exchange market and boost the local currency’s long-term standing in the global market after the country was removed from the U.S. currency monitoring list, according to market watchers, Wednesday. Korea's delisting, Nov. 7 (local time), came as a first since 2016 when the U.S. Trade Facilitation and Trade Enforcement Act of 2015 took effect.
Experts say the development has no material impact on the local economy, since the list was for monitoring, not penalties. But more symbolic is the recognition of Korea's transparency in foreign exchange policies governed by market principles with little risks of currency manipulation. The foreign exchange authorities will in turn be able to better respond to currency volatility widening due to external global uncertainties.
“It is a symbolic assessment,” said An Sung-bae, a senior research fellow at the Korea Institute for International Economic Policy (KIEP).
The removal means, he noted, a reduced risk of Korea being designated as a currency manipulator, and a subsequently stronger say in trade negotiations with the U.S.
“The monitoring list is submitted to the U.S. Congress. A label of currency manipulator can place Korea at a disadvantage, undermining the country’s overall credibility and national standing," he said.
"Wednesday’s development is more about what it spared Korea, not about what good it would bring. Enhanced national image can help with the appreciation of Korean currency in the long term," An added.
The removal is not likely to increase volatility in the local foreign exchange market, according to another macroeconomic expert. This is because the authorities’ recent foreign exchange market intervention was to limit the won's rapid weakening against the dollar, a far cry from manipulating the currency to bolster exports.
“Korea has not taken measures to strengthen the currency, so the removal does not have that much of a meaning other than the symbolic one on transparency,” Meritz Securities researcher Yoon Yeo-sam said.
Countries are put on the U.S. monitoring list if they meet two of the following three conditions in a semiannual review: They register a trade surplus with the U.S. of over $15 billion (19.6 trillion won); current account surplus accounts for more than 3 percent of the country’s GDP and foreign exchange authorities’ net dollar purchases exceed 2 percent of GDP for eight months or longer in a 12-month period.
Korea had met two conditions over the past seven consecutive years, but its current account surplus came to only 0.5 percent of its GDP for two reviews in a row.
The country’s current account surplus stood at $16.58 billion in the first nine months of this year, only about 65 percent of last year’s $25.75 billion.