Factbox-What South Korea has done and could do to defend won

SEOUL (Reuters) – South Korea has issued warnings and made various efforts to prop up the won, one of the world’s worst performing major currencies this year.

The won, near its lowest level since March 2009, has weakened 17% against the U.S. dollar so far in 2022.

Below is the list of recent steps South Korea has taken and is preparing around the foreign exchange market:

** Leaders of South Korea and the United States have repeatedly affirmed their agreement on cooperation for liquidity supply measures for the foreign exchange market, if it becomes necessary, since their summit in May.

** The Bank of Korea has prepared communication channels ready for discussion on a possible currency swap with the U.S. Federal Reserve, if it becomes necessary, although it does not see the need for such an arrangement yet.

** South Korea’s central bank sold a net $15.41 billion for intervention in the local currency market during the second quarter, which was the fourth straight quarter of dollar-selling intervention and the biggest quarterly amount on record. It sold a total of $37.75 billion during the four quarters to defend the won.

** South Korea’s finance ministry has proposed a bill that would remove a tax on foreign investment in its bond market, a move that led Russell to add South Korea to its watch-list for inclusion in the World Government Bond Index, which is expected to boost capital inflows into the local bond market.

** South Korea’s central bank has arranged a $10 billion currency swap program with the country’s state-run pension fund, a tool that allows the fund to finance its overseas investment with the central bank’s FX reserves, instead of buying dollars in the spot market.

** South Korea’s finance ministry plans to utilise the government’s foreign exchange equalisation fund to meet shipbuilding companies’ FX hedging demands for their overseas orders, which it expects to induce some $8 billion worth of dollar supply in the onshore spot market.

** South Korea’s FX authorities postponed a plan to open up an onshore spot market to overseas investors until the market stabilises, in which trading hours are expected to extend to 17 hours – 0000 GMT to 1700 GMT – and foreign-based dealers will be allowed to participate.

** South Korea is currently reviewing possible measures to draw back local residents’ financial assets held overseas.

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