South Korea Announces Measures to Stabilize Foreign Exchange Market

As the won-dollar exchange rate surpassed 1,450 won per dollar for the second consecutive day, the South Korean government has unveiled a series of measures aimed at stabilizing the foreign exchange market. On December 20, the Ministry of Economy and Finance, the Bank of Korea, and the Financial Services Commission announced plans to improve foreign exchange supply and demand, including the listing of Foreign Exchange Stabilization Bonds on the Luxembourg Stock Exchange (LuxSE).

The Luxembourg Stock Exchange, known for its simplified listing procedures, is one of the largest markets globally, with 30% of the world's bonds listed. The government has decided to exempt domestic institutions from submitting securities registration statements when listing bonds on LuxSE. Additionally, Luxembourg will simplify the bond listing procedures for KOSPI and KOSDAQ listed companies, facilitating the raising of foreign currency bonds by Korean firms.

Earlier this year, KDB Korea Development Bank successfully issued $3 billion worth of bonds in Luxembourg. The Ministry of Economy and Finance is now considering procuring Foreign Exchange Stabilization Bonds in Luxembourg, having already issued approximately $1.3 billion worth of these bonds this year.

In a bid to further stabilize the market, the government has decided to abolish foreign currency loan regulations for corporate facility investments. These regulations, which were put in place following the Asian Financial Crisis of 1997-1998, generally prohibited foreign currency loans for purposes other than Korean won usage, except for some facility funds for small and medium-sized enterprises.

Moreover, the government will expand the forward exchange position limits for domestic banks from the current 50% to 75% and for foreign banks from 250% to 375%. This measure is expected to increase the supply of foreign currency in the market, providing additional liquidity.

Despite these efforts, the exchange rate remains firm, underscoring the limitations of the measures. On December 20, the weekly closing price of the won-dollar exchange rate in the Seoul foreign exchange market (as of 3:30 PM) was 1,451.4 won, down 0.5 won from the previous day. During the day, it once rose to 1,452.3 won. Park Sang-hyun, a senior advisor at IM Securities, commented, "While the measures are positive in terms of securing foreign currency liquidity, they have limitations in curbing the recent upward trend in the exchange rate."