The US Department of Treasury is stepping up its pressure on the South Korean government to abandon its intervention in the foreign exchange market amid the Korean currency won’s relentless appreciation against the US dollar.
According to the US department’s semiannual report on international economic and exchange rate policies released on November 27 (local time), the current real effective exchange rate of the won remains seven percent below its historic average, and the Korean currency is undervalued by up to 10 percent. The statement could be interpreted as the US government’s desire for the won to appreciate by 10 percent at maximum.
To support their argument, the US department cited ‘2012 Article IV Consultation of the International Monetary Fund (IMF) with Korea’ last September. A real effective exchange rate is the weighted average of a country`s currency relative to an index or basket of other major currencies adjusted for the effects of inflation.
What is notable in the latest report is its newly-added conclusion that “we will continue to press the Korean authorities to … commit to greater foreign exchange market transparency including through the publication of intervention data.” The treasury department also said “South Korea officially maintains a market-determined exchange rate, and its authorities intervene with the stated objective of smoothing won volatility,” and “Although the Korean government does not publish intervention data, market participants indicate that Korean authorities intervened on both sides of the market during the course of the year.”
[Written by Hyun-kyu Shin - Sun-ah Kim / edited by Soyoung Chung]
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