U.S. and South Korea Pledge Not to Manipulate Currency Rates, Interventions Reserved for Volatility

Washington and Seoul have strengthened their economic partnership. On October 1, the two countries pledged not to manipulate exchange rates for trade advantage, reserving interventions solely to address excessive volatility and disorderly market movements. The agreement does not include a bilateral currency swap line.

Shared Commitments to Fair Markets In their joint statement, the United States and South Korea reaffirmed their commitment to respect International Monetary Fund (IMF) rules and avoid actions that could distort the global monetary system. The initiative is designed to prevent unfair competitive advantages. Both sides agreed that macroprudential measures and capital flow regulations must not be used to manipulate exchange rates. The accord reflects a similar U.S.–Japan agreement reached in August, but unlike the Japanese deal, the pact with Seoul explicitly states that both countries will continue monitoring currency market stability.

Investments for Diversification, Not Currency Pressure The statement emphasized that sovereign investment funds must deploy capital abroad for diversification and risk-adjusted returns, not to influence exchange rates for competitive reasons. While not explicitly mentioned, the debate touches on South Korea’s National Pension Service (NPS), the world’s third-largest pension fund. The U.S. has kept South Korea on its currency monitoring list. Although Seoul was removed in 2023 for the first time since 2016, it was reinstated in November 2024. According to U.S. officials, the NPS’s use of funds for hedging foreign exchange risk may have influenced the won’s value.

Regular Reporting and Information Exchange The new agreement introduces monthly information-sharing on market interventions between Seoul and Washington. South Korea will continue quarterly disclosure of its foreign exchange reserves and forward positions with a three-month lag, but will now also release annual breakdowns of its central bank reserves by currency – even though much of this data is already public. Seoul has maintained a policy consultation channel with the U.S. since April, when the issue first emerged during trade talks. South Korea’s Ministry of Finance hailed the latest initiative as proof of the “importance of mutual trust and open communication” between the two governments to ensure FX market stability.

Broader Trade Context The pledge comes as Washington and Seoul work to balance broader trade ties. In July, the two nations agreed to reduce U.S. tariffs on South Korean imports, including cars, from 25% to 15%. Seoul also committed to investing $350 billion in the U.S., though the initiative has stalled due to Seoul’s concerns over currency market impacts. According to Jung Yue-jin of South Korea’s Ministry of Economy and Finance, the deal sets clear standards: “As long as these standards are upheld, it is unlikely that South Korea will be labeled a currency manipulator.”

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