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BOK releases specifics on its forex interventions

Mar 30,2019
In the second half of last year, the government net sold $187 million on the foreign exchange market, the Bank of Korea (BOK) announced Friday.

It was the first time the government disclosed the extent of its intervention since the foreign exchange market was opened in Seoul in 1962.

The central bank, however, did not disclose exact figures of how much it bought or how much it sold.

“Although we’ve net sold our FX holdings, the amount was miniscule, which shows that the market was stable last year,” said a BOK official.

The BOK official added that since the numbers are so low, the possibility of Korea being labeled a currency manipulator by the United States is low since the bar is set at 2 percent of the GDP. Net sales of $187 million would be less than 0.0001 percent of Korea’s GDP.

“Although Korea has been on the monitoring list, we have never been named a manipulator,” the official said. “It has been our principle to only intervene in the market when there are excessive changes.

“The disclosure of the FX intervention will end concerns [of being labeled a currency manipulator],” he said.

Starting this year, the Korean government is releasing an “FX market stabilization measure” every six months detailing its interventions to some extent. Next year, that report will be released every quarter.

Last May, the Finance Ministry announced it would disclose the information after coming under heavy pressure by not only the Donald Trump administration but also by international organizations such as the International Monetary Fund (IMF).

During the 2016 presidential campaign, then-candidate Trump repeatedly attacked major U.S. trading partners including Korea for taking advantage of the United States by keeping their currencies weak.

That helps Korea’s exports to the United States and hinders American exports to Korea.

The Korean government has repeatedly denied any involvement in currency manipulation and argued it was all a misunderstanding on the U.S. side.

In a National Assembly annual audit last October, then-Finance Minister Kim Dong-yeon told lawmakers that the Korean government only intervenes in the FX market when there’s major instability.

Korea was able to avoid being labeled a currency manipulator by the U.S. Treasury Department last year for the sixth time, but it was among six countries that remained on Washington’s watch list along with China, Japan, Germany, Switzerland and India.

The U.S. releases a report called “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States” in April and October every year.

Korea continued to meet two of the three conditions that the U.S. government uses to brand a country a currency manipulator.

The three conditions are: countries that have a trade surplus with the United States exceeding $20 billion; a current account surplus of more than 3 percent of the country’s GDP; and consistent intervention by the government to shore up foreign currency with trades equal to 2 percent or more of the GDP for a year or longer.

Korea’s trade surplus with the United States exceeds $20 billion and its current account surplus with the United States exceeds more than 2 percent of its GDP.

BY LEE HO-JEONG, PARK EUN-JEE [lee.hojeong@joongang.co.kr]