The administration of U.S. President Donald Trump re-designated South Korea as a currency monitoring list country on the 23rd (local time).

In its semi-annual report on the "Macroeconomic and Foreign Exchange Policies of Major Trading Partners" submitted to the federal legislature that day, the U.S. Treasury Department placed 10 countries, including South Korea, China, Japan, Taiwan, Singapore, Vietnam, Germany, Ireland, Switzerland, and Thailand, on the monitoring list.

This report analyzes major economies' macroeconomic and foreign exchange market trends throughout the year 2025.

All of these 10 countries were included in the monitoring list in the January report as well.

The report diagnosed that South Korea's current account surplus "expanded from 5.3% of gross domestic product (GDP) in 2024 to 6.6% in 2025," noting that "this was almost entirely driven by merchandise trade, primarily stemming from semiconductors and other technology-related products."

At the same time, it pointed out that "the won faced persistent depreciation pressures."

This means that upward pressure on the won-dollar exchange rate continued despite foreign currency inflows from semiconductor exports, with outflows caused by overseas stock investments by domestic institutions and individuals cited as a contributing factor.

The report stated that "general government overseas equity holdings in South Korea, including the National Pension Service, increased by $41 billion during the year, a significant rise from $8 billion in 2024," adding that "most were unhedged, contributing to upward pressure on the won's weakness."

It continued, "Overseas stock investments by South Korea's non-bank financial institutions and households were another factor behind the won's depreciation pressure in 2025," and noted that "such capital outflows increased from $34 billion in 2024 to $73 billion in 2025, with a particular concentration in the fourth quarter of 2025."

The report conveyed that "this appears to stem from South Korean retail investors purchasing more than $30 billion in foreign stocks in 2025, which the Bank of Korea described as a 'unique phenomenon.'"

Against this backdrop, U.S. Treasury Secretary Scott Bessent met with Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol, who visited the United States on January 14, delivering a verbal intervention-style message that the decline in the won's value "is not consistent with South Korea's strong fundamentals."

The report also assessed that South Korean foreign exchange authorities appeared to focus on "mitigating excessive volatility amid depreciation pressures" through market interventions.

The report revealed that "South Korean authorities reported carrying out $28 billion in net sales of foreign exchange reserves [for market intervention purposes] in 2025, equivalent to about 1.5% of GDP. Of this, $22.5 billion occurred in the fourth quarter of 2025 [when the exchange rate surged]."

During this period, the Bank of Korea's net forward purchase position increased from $17 billion in December 2024 to $31 billion in May 2025 before being almost entirely depleted, dropping to $1.3 billion in December 2025, it noted.

The report estimated that the National Pension Service also "likely alleviated downward pressure on the won by utilizing currency swaps with the Bank of Korea while selling dollar-denominated assets," in line with government policy stances.

The report evaluated that "South Korean related authorities are making progress in easing restrictions on foreign investors' participation in the domestic foreign exchange market," adding, "This is expected to help market liquidity and price discovery functions in the medium term."

South Korea was removed from the currency monitoring list in November 2023 for the first time in about seven years since April 2016, but was re-included in November 2024 before the launch of the Trump administration.

Under the Trade Facilitation Act enacted in 2015, the United States evaluates the macroeconomic and foreign exchange policies of its top 20 trading partners by volume and designates them as enhanced analysis or monitoring list countries if they meet certain criteria.

The current evaluation criteria are ▲ a goods trade surplus with the U.S. of at least $15 billion ▲ a current account surplus of at least 3% of gross domestic product (GDP) ▲ and net foreign exchange purchases amounting to at least 2% of GDP over at least 8 out of 12 months.

Meeting all three criteria triggers enhanced analysis, while meeting two criteria results in placement on the monitoring list.

In its press release, the Treasury Department stated that there was no currency manipulation by the analyzed countries, though it pointed out regarding China that "while China is not designated as a currency manipulator in this report, a relative lack of transparency in its exchange rate policies and practices continues to stand out among major trading partners."

Citing this lack of transparency, the Treasury stated that the possibility remains open for China to be designated as a currency manipulator if evidence emerges of official or unofficial interventions by Chinese authorities to block yuan appreciation in the future.

(Photo: AP, Yonhap News)