South Korea's central bank announced temporary measures on Friday aimed at boosting the supply of U.S. dollars in the domestic foreign exchange market. The move is the latest policy effort to curb sharp declines in the South Korean won.
A Bank of Korea official stated that authorities were intervening to sell dollars in the market to smooth exchange-rate movements. The official noted that the supply-demand imbalance in the foreign exchange market had become severe, warranting short-term improvements.
Announced Temporary Measures
Recent Won Performance
Broader Context and Additional Actions
Persistent won weakness, which policymakers attribute to rising overseas investments by the national pension fund, retail investors, and local companies, is fueling concerns about higher inflation.
Earlier in the week, the central bank extended its currency swap line with the National Pension Service to absorb dollar demand from the fund's overseas investments. Simultaneously, the finance ministry decided to relax currency forward caps on local banks to supply more dollars in the onshore market.
Government and Regulatory Response
On Thursday, the country's presidential policy adviser, Kim Yong-beom, met with major exporting companies to discuss the foreign exchange market. Media reports quoted him as warning firms not to seek profit from the won's weakness.
The Financial Supervisory Service said on Friday it would examine financial firms' business practices of encouraging overseas investment. It will require them to suspend promotional events and inform customers more thoroughly of the associated risks.
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Source: REUTERS