Authorities may cap 46 47.6 43.6 banks’ daily net forward exchange positions
The Korean won climbed against the U.S. dollar to a 15-month high on better-than-expected U.S. employment figures over the weekend and Korean exporters’ rush to sell the greenback.
Foreign exchange authorities are weighing the timing of another round of measures to stabilize the FX and financial markets in case an inflow of global liquidity into Korea following quantitative easing by advanced economies increases market volatility.
Authorities say they are likely to revise the rules to cap banks’ forward exchange positions by their net positions each business day instead of their monthly average. Under the current system, which caps the monthly average, banks can exceed the forward exchange position limits on a daily basis as long as their monthly average is kept under the government-set limit.
If the cap is applied on the daily net positions, a foreign bank here with $10 billion in in-country capital whose forward exchange position is limited to 150 percent of its capital, for instance, would be violating the rules should its daily net position rise over $15 billion even for a day.
Some call for first applying the cap on the weekly average before limiting the daily net positions.
“We are trying to raise the effectiveness of the regulations. We believe restricting the daily net positions would be more effective than the weekly average, although details are yet to be determined,” an FX authority said.
Financial authorities on Nov. 27 lowered the ceilings on forward exchange positions by 25 percent to 150 percent of equity capital for local branches of foreign banks and 30 percent for domestic banks. The move will take full effect starting Jan. 1.
Financial Services Commission chief Kim Seok-dong told reporters Monday that Seoul’s “smoothing operations” take place only when there is significant market volatility, stressing that it does not seek market intervention.
“The won rose because of the current account and capital account surpluses. Some 19.2 trillion won ($17.8 billion) of foreign capital flowed into Korea this year. Seoul is only tightening FX rules since they have been lax so far. The Nov. 27 measure did not have any major impact on the market,” Kim said.
The government is also reviewing measures aimed at speculative investments in the non-deliverable forward market. An NDF is an outright forward or futures contract in which counterparties settle the difference between the contracted NDF price or rate and the prevailing spot price or rate on an agreed notional amount.
Ways to control the speed of the inflow of foreign investment in bonds are also being considered.
The nation’s currency against the greenback ended at a 15-month high of 1,079.00 won, up 2.7 won from Friday’s close, as local exporters decreased their dollar holdings.
The won-dollar rate tumbled as soon as the market opened at 1,081 won per dollar, down to 1,078 won, the lowest in 15 months since Sept. 9, 2011 (1,074 won).
By Kim So-hyun ()
koreaherald@heraldcorp.com
