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Photo courtesy of Yonhap News |
[Alpha Biz= Kim Jisun] Korea’s economic authorities have decided to extend the US$65 billion foreign exchange swap arrangement with the National Pension Service (NPS) to help curb the rapid depreciation of the Korean won. The government also sent a strong warning to exporters, signaling that policy funding could be withheld if they do not actively sell their dollar holdings into the market.
According to the Ministry of Economy and Finance on December 1, Deputy Prime Minister Kyungho Choo held an emergency meeting with Bank of Korea Governor Rhee Chang-yong and Financial Services Commission Chairman Lee Bok-hyun to discuss FX market stabilization measures.
The FX swap agreement—set to expire at the end of this month—allows the NPS to borrow U.S. dollars from Korea’s foreign reserves in exchange for won. Although the NPS has not actively utilized the facility, authorities believe that simply extending the agreement will help calm markets. Greater use of the swap by the NPS would further ease downward pressure on the won, a government official noted.
The government also reiterated its warning to major exporters, stating that it will regularly review their FX conversion practices and overseas investments, and may connect these reviews with eligibility for policy-support programs. Dollar deposits held by corporations at Korea’s five major banks surged from US$44.3 billion at the end of October to US$53.7 billion at the end of November, a factor cited as contributing to the won’s continued weakness despite a strong current account surplus.
Meanwhile, the Financial Supervisory Service has launched an investigation into securities firms heavily used by Korean retail investors trading overseas. Regulators plan to assess whether firms provided adequate explanations and protection measures related to FX exposure. Industry observers expect particular scrutiny of firms that promoted “FX-open” products—structures that leave investments fully exposed to exchange rate fluctuations and generate higher returns when the won weakens against the dollar.
Alphabiz Reporter Kim Jisun(stockmk2020@alphabiz.co.kr)
