Posts tagged ‘currency’
On 26 October 2011, the Bank of Korea (BOK) announced that it had reached an agreement with the People’s Bank of China (PBC) to almost double the won-yuan swap arrangement from USD33.7billion to USD56.5 billion. Read more
In September 2011, ROK foreign-exchange reserves declined 2.8 percent (USD8.81 billion), from USD312.2 billion to USD303.4 billion. This is the biggest monthly fall since reserves declined by USD11.75 billion in November 2008, when the government poured dollars into the currency market to stem the currency’s decline at the height of the global financial crisis. Read more
On 8 March 2011 in a report to the National Assembly, the Finance Ministry confirmed its willingness to intervene in currency markets to support price stability. In its general statement on the economy, the Finance Ministry noted that the real economy was recovering with strong domestic and export demand. Read more
On 4 March 2011, the Bank of Korea (BOK) launched the expansion of the Reserve Management Group –the department in charge of managing foreign exchange reserves. The expanded department, headed by Hong Taeg-Ki, aims to strengthen expertise and ultimately achieve better reserve management. Read more
Concerns that US pressure to appreciate the KRW would increase in the lead-up to the ratification of the KORUSA FTA have dampened. On 4 February 2011, the United States Treasury Department released the semi-annual Report to Congress on International Economic and Exchange Rate Policies. The report cited International Monetary Fund (IMF) calculations that the KRW is 5-20 percent undervalued and called for a greater degree of exchange rate flexibility and less intervention. Read more
On 29 December 2010, the Financial Supervisory Service (FSS) stated that the South Korean government will announce lower ceilings on bank foreign exchange forward positions in January 2011.
The ceiling for domestic banks will be lowered from the current level of 50 percent of capital to 40 percent. The limit for local branches of foreign banks in Korea will be lowered from 250 percent of capital to 200 percent. No precise date was given for the change.
The current steps follow on from the June 2010 cap on bank foreign exchange forward positions and the December 2010 announcement to impose a bank levy against the balance of non-deposit foreign currency debt and may be followed with further steps. Legislators are currently considering the reintroduction of taxes on foreign investor local government bond purchases.
The moves represent sound measures to minimize the volatility of capital movement in and out of the Korean financial system, but also place a burden on the banking system with the increased cost of securing foreign liabilities. Ultimately, banks will have to shoulder this cost or pass it on to borrowers.
The hosting of the G20 will bring international media attention to Korea at a time of increasing tension regarding foreign exchange controls. Korea has a questionable record on currency management and has maintained a highly activist policy in an attempt to ensure both stability and export competitiveness. Japan is paying particular attention to Korea’s position. The YEN has risen approximately 13 percent against the USD to date this year, compared to a 4 percent rise for the KRW. With less than one month to go until the G20 meets in Korea, Japan’s Finance Minister Yoshihiko Noda has fired a warning shot. Noda called into question Korea’s leadership of the G20 on the basis of the country’s currency management.
Keywords: Japan, Bank of Korea, currency, G20, export competitiveness, foreign exchange
