South Korean officials on Thursday largely shrugged off the U.S. Treasury Department’s latest admonition about intervening in currency markets, saying they will continue to stabilize the Korean won whenever necessary.
The Finance Ministry had no official reaction to the Treasury Department’s semiannual currency report, which identified South Korea–as well as China and Japan–as major trading partners with problematic currency policies.
- Bloomberg News
A senior ministry official called it “the same and usual story that has been pointed out every time.” Another said: “The report will not change or affect the [South Korean] government’s stance toward the markets. If the markets turn volatile, we take action to stabilize the markets. We’re firm about this basic stance.”
The U.S. Treasury’s report is intended to ensure that major trading partners don’t use their currencies to gain a competitive edge over U.S. exports.
South Korean authorities are believed to have intervened in early 2013 and again in September to limit the pace of the won’s gains against the Japanese yen, the report said. It encouraged Korean officials to limit intervention to “exceptional circumstances of disorderly market conditions.” It didn’t name South Korea a currency manipulator.
The won’s strength reflects South Korea’s strong economic fundamentals, including a large and growing current-account surplus, the report said.
South Korean policy makers are worried about big gains in the won hurting exports. Last week, the central bank and finance ministry issued a joint verbal statement expressing concerns about the won’s appreciation after it hit 1,050.3 against the U.S. dollar–the highest level in more than two years. Traders believe the Bank of Korea purchased around $2 billion worth of dollars to limit the won’s rise shortly afterward.
The won gained more than 6% against the dollar during the July-September period and about 1.5% in October. The won’s rise was largely driven by massive inflows of foreign capital seeking better returns in South Korea, one of the best performing emerging economies in Asia.
South Korean officials are nervous about possible capital flight when global liquidity dries up. The country was one of the worst-hit during the severe foreign-currency liquidity shortage during the 1997-1998 Asian financial crisis and again during the 2008 global financial crisis.
The Seoul government has taken a series of measures since 2010 to ward off sudden capital flows, including a cap on banks’ foreign-exchange forward positions, a tax on foreign investment in local bonds and a levy on banks’ offshore debt.
