South Korea to ease foreign exchange regulations to help secure foreign currencies

A currency trader covers his face at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea. Photo by: AP Photo/Ahn Young-joon

A currency trader covers his face at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea. Photo by: AP Photo/Ahn Young-joon

Published Mar 18, 2020

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SEOUL - South Korea's finance ministry said Wednesday that it will ease regulations on the foreign exchange market to help companies and financial institutions secure foreign currencies.

The ceiling on a ratio of foreign exchange forwards position to equity will be raised from 40 percent to 50 percent for local banks beginning Thursday, according to the Ministry of Economy and Finance.

The cap for the Seoul branches of foreign banks will be lifted from the currency 200 percent to 250 percent.

Minister of Economy and Finance Hong Nam-ki, who doubles as deputy prime minister for economic affairs, told a meeting with other economy-related ministers that the measures would help stabilise the currency swap market by inducing more foreign funds.

South Korean Deputy Prime Minister Hong Nam-ki speaks with reporters during the World Bank/IMF Spring Meetings in Washington. Photo by: AP Photo/Jose Luis Magana

It came after volatility increased in the foreign exchange market on worry about economic fallout from the COVID-19 outbreak across the world.

The won/dollar exchange rate jumped 17.5 won to 1,243.5 won per dollar on Tuesday, marking the highest close in about 10 years.

The ceiling on the ratio of forwards position to equity was first set in October 2010 in the aftermath of the global financial crisis as part of efforts to prevent banks from increasing short-term foreign debts excessively.

Excessive forwards positions led to a surge in short-term foreign debts, which were withdrawn massively from local banks in times of financial crisis.

As the ceiling was eased, more foreign funds could be offered by banks to the local currency market.

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