BOK unveils temporary steps to stabilize FX market as won weakens

Dec. 19 (Asia Today) -- The Bank of Korea said Thursday it will temporarily ease regulations and offer incentives to financial institutions in a bid to stabilize the foreign exchange market as the won continues to weaken against the U.S. dollar.

The central bank said it convened an emergency Monetary Policy Board meeting earlier in the day and decided to temporarily exempt the foreign exchange soundness levy from January through June next year. It will also pay interest on foreign currency reserve requirements during the same period.

The announcement comes as the won-dollar exchange rate has hovered at elevated levels, approaching 1,480 won per dollar.

The foreign exchange soundness levy, imposed under the Foreign Exchange Transactions Act, requires financial institutions to pay a levy when their foreign currency liabilities exceed a certain threshold. Temporarily exempting the levy is expected to lower foreign currency borrowing costs for banks, potentially increasing the supply of dollars and other foreign currencies in the domestic market.

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Paying interest on foreign currency reserve deposits is also intended to ease foreign currency liquidity risks. By providing interest income, the measure increases incentives for financial institutions to hold foreign currency reserves, strengthening liquidity buffers and potentially helping to reduce market volatility.

The central bank said it expects the levy exemption to expand incentives for domestic financial institutions to supply foreign exchange. It added that broadening short-term foreign currency funding options could encourage foreign currency deposits held overseas by non-financial institutions and individuals to flow back into the domestic market.

- Reported by Asia Today; translated by UPI

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