U.S. and South Korea Reaffirm Currency Policy to Limit Market Volatility

The United States and South Korea have reached an agreement to ensure foreign exchange interventions are reserved only for addressing excessive volatility, rather than influencing exchange rates for competitive advantage. The joint statement, released Wednesday, mirrors a similar commitment made last month between Washington and Tokyo, though it does not include a bilateral currency swap line that Seoul had requested.

Both nations emphasized compliance with the IMF Articles of Agreement, pledging to avoid manipulating exchange rates or the international monetary system to gain unfair trade advantages. The agreement highlights that any macroprudential or capital flow measures must not be used to target exchange rates for competitiveness.

Unlike the U.S.-Japan pact, the statement with Seoul did not explicitly stress that exchange rates should remain “market determined.” Instead, South Korea underscored ongoing efforts to maintain currency market stability. The two sides also clarified that government investment vehicles allocate assets abroad for diversification and returns, not to influence currency movements.

Washington has raised concerns in recent reports about South Korea’s National Pension Service (NPS), one of the world’s largest pension funds, and its growing foreign assets. Some market participants fear the NPS could be perceived as a currency intervention tool. South Korea was already on the U.S. Treasury’s monitoring list, with attention drawn to its foreign asset expansion and swap line with the Bank of Korea.

To enhance transparency, Seoul agreed to share details of its foreign exchange intervention operations with Washington on a monthly basis. Public disclosures will remain quarterly with a three-month delay. Additionally, South Korea will continue releasing data on foreign reserves, forward positions, and the currency composition of central bank reserves.

The agreement comes amid stalled trade talks tied to a $350 billion South Korean investment in the U.S. The won has already weakened 3% in the second half of the year, hovering near the key 1,400-per-dollar level, reflecting investor concerns over ongoing trade negotiations.