US meddling too much in forex policy

With the government continuing talks with the United States over measures to enhance the transparency of its foreign exchange operations, Korea should stick to its principles against U.S. pressure, which experts say seems to have gone too far.

“Basically, the United States is taking all measures for its national interest. The government should stress its sovereignty in foreign exchange policy as well as the fact that Korea has not manipulated exchange rates. Korea has grown into the world’s 11th-largest economy, and I don’t understand why the government is taking such a submissive attitude,” said Sookmyung Women’s University professor Shin Se-don.

The Korean won closed at 1,059.8 won per dollar Wednesday, rising 5.6 won from the previous day, when it hit the lowest level in more than three years.

The finance ministry said it was “considering measures to enhance transparency of foreign exchange smoothing operations, taking into account recommendations by the International Monetary Fund (IMF) and the United States’ report on foreign exchange policies of trading partners.”

“We will make a final decision after comprehensively taking into account the maturity of our foreign exchange market, economic structure and cases of other countries,” it said.

On top of the revisions to the Korea-U.S. Free Trade Agreement (FTA) which aimed at slashing the U.S. trade deficit, the United States has been demanding Korea improve transparency in its foreign exchange policy. Korea is expected to disclose its “smoothing operations,” or minor interventions in the foreign exchange market in which it buys or sells U.S. dollars to halt major fluctuations.

While the IMF also recommends disclosing such interventions, experts say Korea should determine how and when to disclose on its own, following a domestic consensus, not by succumbing to pressure by the United States.

“Foreign exchange is within the scope of sovereignty. We should go with the policies with principles that we set, just like any other country,” he said, pointing to China as well as Japan which devalued the Japanese yen following Abenomics.

The United States publishes a semiannual report in which it designates currency manipulators. It put Korea on the monitoring list last year, citing the huge current account and trade surpluses with Washington. Shin said the U.S. uses the report as leverage for its own interests, on top of ignoring the global trade order.

He also said the country’s finance ministry has been too passive in foreign exchange policy.

“For the past two years, the finance ministry has almost neglected the foreign exchange rates. It has no reason to be daunted by U.S. pressure.”

If the government determines to disclose its interventions, there remains the question of how often it should do so. The United States, for instance, discloses its own interventions every quarter. Many other developed economies such as Japan reveal their interventions the following month. However, experts point out they are big economies with key currencies. Countries including Singapore, Malaysia and Vietnam, meanwhile, chose semiannual disclo- sure, while Switzerland does it once a year. Korea, which has suffered foreign exchange crises, has the trauma of falling prey to speculators. Revealing interventions too quickly and frequently increases such risks, as speculators will study the government’s strategy and leaving it with few options.

Hong Sung-il, head of the economic policy team at the Korea Economic Research Institute, said the overval- ued Korean won especially hurts exporters.

“While the Trump administration is using foreign exchange as a means of pressure in trade, all countries carry out smoothing operations. The government should intervene when there is a fluctuation, but it has been too cautious.”

He especially showed concern over the rapid pace of the strengthening won.