South Korea Stays on US Currency Watchlist as Won Faces Depreciation Pressure

Seoul Remains Under Scrutiny

The US Treasury has maintained South Korea on its currency monitoring list, pointing to sustained depreciation pressure on the won despite the country's substantial current account surplus and strong economic fundamentals. The designation, announced in the Treasury's semiannual foreign exchange report released Thursday, places Seoul among ten economies subject to enhanced scrutiny of currency practices.

South Korea joins China, Japan, Taiwan, Singapore, Vietnam, Germany, Ireland, Switzerland, and Thailand on the list. The composition remains identical to the Treasury's January assessment, signaling continuity in Washington's approach to tracking potential currency manipulation across major trading partners.

According to the Treasury, Korea met two of the three technical criteria that trigger inclusion on the monitoring list. The thresholds examine bilateral trade surpluses with the United States, current account balances relative to GDP, and persistent one-sided intervention in foreign exchange markets.

The Won's Downward Trajectory

Currency depreciation has emerged as a defining feature of Korea's exchange rate dynamics over recent quarters. The won has faced consistent weakening pressure despite Seoul's large current account surplus, which typically supports currency appreciation under conventional economic models. This divergence between trade fundamentals and currency performance has drawn attention from US policymakers monitoring global exchange rate patterns.

South Korea's economic fundamentals remain robust by most measures. The country continues to run significant current account surpluses, reflecting strong export performance across semiconductors, automobiles, and advanced manufacturing. Corporate balance sheets show resilience, and household savings rates remain elevated compared to regional peers.

Yet the won has struggled to translate these strengths into currency stability. Market participants point to multiple factors driving depreciation pressure, including capital outflows amid global monetary tightening cycles, regional currency volatility, and shifting investor sentiment toward emerging Asian assets.

Monitoring Framework and Policy Implications

The Treasury's watchlist does not carry direct penalties or sanctions. Instead, it functions as a diplomatic signal and triggers enhanced engagement between Washington and the designated economies. Countries appearing on the list face heightened scrutiny of their currency policies and trade practices in bilateral discussions.

For an economy to be formally designated as a currency manipulator, rather than merely monitored, it must meet all three criteria simultaneously: a bilateral trade surplus with the US exceeding twenty billion dollars, a current account surplus above two percent of GDP, and persistent net purchases of foreign currency exceeding two percent of GDP over a twelve-month period.

South Korea's placement on the monitoring list reflects concern about currency dynamics rather than an accusation of active manipulation. The Treasury's language acknowledges Seoul's strong fundamentals while flagging the persistent downward pressure on the won as a point requiring continued observation.

Regional Context and Trade Dynamics

The unchanged composition of the watchlist underscores broader patterns in US-Asia economic relations. Six of the ten monitored economies are located in Asia, reflecting the region's dominant role in global trade flows and its accumulation of current account surpluses over the past decade.

Japan and China remain fixtures on the list, with Tokyo's massive current account surplus and Beijing's bilateral trade imbalance with the US ensuring continued scrutiny. Taiwan and Singapore, both major semiconductor exporters, face monitoring tied to their trade positions and currency management approaches.

Vietnam's presence reflects its emergence as a manufacturing hub absorbing production capacity shifting from China, resulting in a growing trade surplus with the United States. Thailand rounds out the Asian economies, monitored for its current account dynamics and intervention patterns.

Outside Asia, Germany maintains the Eurozone's largest current account surplus, while Ireland's inclusion stems from its role as a corporate tax and intellectual property hub generating large recorded surpluses. Switzerland's longstanding current account surplus and history of currency intervention keep it under watch.

What Comes Next

The Treasury's next foreign exchange report is scheduled for early 2027, when it will reassess each economy's currency practices and trade positions. Changes to the list typically occur when countries cross or fall below the technical thresholds for sustained periods, or when intervention patterns shift materially.

For South Korea, the key variable will be the won's trajectory over coming months. If depreciation pressure eases and the currency stabilizes or strengthens, Seoul could move closer to removal from the list. Conversely, continued weakness combined with evidence of intervention to resist appreciation could intensify scrutiny.

Currency monitoring remains a persistent feature of US trade policy, reflecting Washington's focus on ensuring that exchange rate policies do not provide unfair competitive advantages. For economies like South Korea that maintain open capital accounts and floating exchange rates, inclusion on the watchlist highlights the complexity of managing currency stability amid volatile global financial conditions.