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US vows to closely monitor Korea's currency practices

The United States did not designate South Korea and four other major trading partners currency manipulators, but it has vowed to closely monitor their currency practices.

"No major trading partner of the United States met the standards... for currency manipulation in the first half of 2017," the Treasury Department said Tuesday in a report made to Congress.

Still, the Treasury placed South Korea, China, Germany, Japan and Switzerland on its Monitoring List for special attention. Taiwan was excluded from the latest watch list.

Washington has vowed to aggressively keep tabs and combat unfair currency practices, saying the US cannot and will not bear the burden of an international trading system that it claims unfairly disadvantages US exports and unfairly gives an edge to US trading partners.

Foreign currency at a Seoul bank (Yonhap)
Foreign currency at a Seoul bank (Yonhap)

"We will continue to monitor foreign exchange policies for unfair currency practices, which adversely impact all Americans," Treasury Secretary Steven T. Mnuchin said in a comment posted on the official website.

The Treasury Department claimed South Korea, Japan and Germany have met two of the three criteria in every report since the April 2016 report, having material current account surpluses combined with significant bilateral trade surpluses with the US

The third criteria is persistent, one-sided intervention in foreign exchange markets. The US labels an economy -- which meets all three criteria -- a currency manipulator.

Kim Yoon-kyung, a senior official at South Korea's finance ministry, said the US decision was in line with South Korea's expectations, citing a decline of South Korea's current account surplus and its trade surplus with the US

South Korea's current account surplus declined to 5.3 percent of the country's gross domestic product in the first half of 2017 from a peak of 7.8 percent in 2015, according to the Treasury.

South Korea's goods trade surplus with the US came to $22 billion between July 2016 and June 2017, down $8 billion from a year earlier.

The Treasury Department said it estimates that South Korean authorities made net purchases of foreign exchange of $4.9 billion (0.3 percent of GDP), including activity in the forward market, between July 2016 and June 2017.

South Korea "has well-developed institutions and markets, and should limit currency intervention to only truly exceptional circumstances of disorderly market conditions," it said, noting Seoul maintains ample reserves at $371 billion as of June 2017, equal to more than three times gross short-term external debt and 25 percent of GDP.

South Korea was put on the watch list last year as it posted a significant bilateral trade surplus with the United States amid other factors. (Yonhap)

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