South Korea escapes currency manipulation label

Report on Foreign Exchange Policies of Major Trading Partners of the United States

Country’s credit rating from Moody’s remains at the current level

South Korea has dodged the external risk of US designation as a currency manipulator. The international credit rating company Moody’s plans to maintain South Korea’s credit rating at its previous level.

In its October exchange rate report, the US Treasury Department placed South Korea on its monitoring list for a second straight time since April, the South Korean Ministry of Strategy and Finance reported on Oct. 18. Every April and October, the Treasury Department publishes its Report on Foreign Exchange Policies of Major Trading Partners of the United States in which it designates countries as currency manipulators based on the size of their trade surplus (US$20 billion or more) and current accounts surplus (3% of GDP or more) and attempts by government authorities to influence the direction of the foreign exchange market (net purchasing equaling 2% or more of GDP).

South Korea was placed on the monitoring list rather than the manipulator list because it met only the trade and current account surplus criteria. China, Japan, Germany, and Switzerland were also on the monitoring list.

Once designated a currency manipulator, a country may face action such as investment restrictions and a ban on US procurement market activity unless corrective action is taken within one year. Concerns had previously been voiced that [South Korea] might be designated a currency manipulator as a form of trade pressure.

South Korean Deputy Prime Minister and Minister of Strategy & Finance Kim Dong-yeon speaks with Alastair Wilson of Moody’s at the IMF-World Bank annual general meeting in Washington, D.C. on Oct. 12 (provided by Ministry of Strategy & Finance)

The same day, Moody’s announced that South Korea’s credit rating would remain at its current level of AA2 (stable). The rating is the third highest, with only five countries placing about South Korea with the highest possible rating of AAA: the US, Germany, Canada, Australia, and Singapore. In explaining the decision to maintain South Korea’s current rating, Moody’s raised its strong economic recovery capabilities, fiscal soundness, and transparent government institutions.

Moody’s also noted predictions of robust growth in the 2–4% range over the next five years and strong competitiveness in innovative growth, as well as a strong increase in facility investment, rising exports, and signs of recovery in private consumption. The agency further praised the Moon Jae-in administration’s plan for “human-centered economic growth.”

Noting the government’s focus on increasing household income and jobs in demand terms and improving productivity through deregulation and small business support in supply terms, the report singled out [the administration’s] attempts to establish a fair economy through chaebol reform, which it predicted would improve the potential growth rate and support institutional stability if they come to fruition.

By Noh Hyun-woong, staff reporter

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