The One Condition Under Which The US Treasury Permits Korea To Manipulate Its Currency

Tyler Durden's picture

From the just released "Semiannual Report on International Economic and Exchange Rate Policies"

Korea’s current account surplus further increased to 6.1 percent of GDP in 2013 – the highest  since 1999 – compared to 4.2 percent in 2012. Korea is one of only a few surplus economies with a significantly larger external surplus now than before the crisis. Net exports accounted for over half of Korea’s growth in 2013, highlighting the economy’s continued dependence on external demand and the weakness of domestic demand. Although Korea does not publish data on its foreign exchange intervention, during the second half of 2013 the Korean authorities are believed to have intervened to limit the pace of won appreciation. Korea’s foreign exchange reserves rose from $315.6 billion at end-June 2013 to $335.6 billion at end-December and $341.0 billion at the end of February 2014. The Korean authorities also increased their net forward position by $4.9 billion to $50.5 billion over the second half of 2013. The magnitude of these changes is larger than can be reasonably expected from simple interest earnings on the existing stock of reserve assets or valuation changes. The Korean authorities should limit foreign exchange intervention to the exceptional circumstances of disorderly market conditions and increase the transparency of their interventions in foreign exchange.

On behalf of South Korea we would like to thank the US Treasury, whose debt issuance the Fed has montized for the past five years and kept the USD low - this permission is very generous of you.

On the other hand, China was not quite as lucky to get the permissive manipulation treatment:

Recent developments in the RMB exchange rate would raise particularly serious concerns if they presage renewed resistance to currency appreciation and a retreat from China’s announced policy of reducing intervention and allowing the exchange rate to reflect market forces. We will continue to monitor these issues closely going forward. In line with the practice of most other G-20 nations, China should disclose foreign exchange market intervention regularly to increase the credibility of its monetary policy framework and to promote exchange rate and financial market transparency.


China should refrain from intervention within the band and should allow market forces to permit the reference rate to adjust if market pressures push the exchange rate to the edge of the band.

Like, for example, buying up all 10 Year duration issued by its Treasury? One would almost be left with the impression that China is receiving less than fair (there's that word again) treatment by the US.