Korea and U.S. Reach Agreement on Foreign Exchange Data Sharing

On September 24, South Korea’s Finance Minister Koo Yun-cheol met with U.S. Treasury Secretary Scott Bessent in New York, leading to an important agreement between the two nations regarding foreign exchange transactions. This arrangement aims to enhance cooperation amid ongoing trade negotiations.

Key Details of the Agreement

Under this new framework, South Korea will provide the U.S. Treasury with detailed monthly data, including:

• Foreign Exchange Reserves: Korea will disclose its foreign exchange reserves and forward foreign exchange positions based on the IMF’s data template.
• Currency Composition: An annual report will outline the currency composition of the country’s foreign exchange reserves.

This initiative aligns with both countries’ commitment to maintaining fair currency practices. The Finance Ministry emphasized that the primary principle is to avoid manipulating currencies for competitive advantage.

Conditions for Market Intervention

Seoul and Washington agree that intervention in the foreign exchange market should only occur during periods of:

• Excessive Volatility: Actions should be aimed at stabilizing the market rather than manipulating the exchange rate.
• Balanced Approach: Any intervention must remain neutral regarding the actual exchange rate.

Additionally, investment vehicles run by the South Korean government are encouraged to focus on achieving risk-adjusted returns and market diversification, steering clear of targeting exchange rates for competitive gains.

Missed Opportunities: Currency Monitoring and Swap Talks

Despite heightened expectations from Korean media, the discussions did not result in Korea’s removal from the U.S. currency monitoring list. The U.S. Treasury had placed Korea on this list due to its significant trade surplus with America in June.

The potential establishment of a won-dollar currency swap, another area of interest, was also left off the agenda. The Korean government has been actively advocating for this currency swap to mitigate rapid fluctuations in the won, especially in light of its commitment to invest $350 billion in the U.S. However, concerns persist among experts regarding the feasibility of such an agreement, given that the won is not considered a key global currency.

Insight from Financial Experts

A foreign exchange expert, speaking anonymously, noted that this agreement showcases Korea’s determination to clarify its market intervention practices. “The agreement indicates Korea’s ambition to demonstrate that any interventions are not meant to manipulate the exchange rate but are focused on maintaining market stability,” they said.

Furthermore, the expert remarked that Korea seems to be pursuing either removal from the U.S. currency monitoring list or securing a currency swap with the United States, though the latter appears less likely.

Future Developments in Korea’s Currency Market

Currently, South Korea’s currency market operates from 9 a.m. to 2 a.m. the next day, but there are plans in place to transition to a 24-hour foreign exchange system. This move reflects Korea’s broader ambition to further open its foreign exchange market.

In conclusion, while this latest agreement did not yield some anticipated outcomes, it signifies ongoing efforts between the U.S. and South Korea to enhance financial cooperation and ensure market stability.

For more insights and updates, stay tuned with us.

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