South Korea Says New Steps Will Give Won’s Status A Boost

South Korea Says New Steps Will Give Won’s Status A Boost

February 9, 2023 0 By Wiley McDermott

On Thursday, a South Korean vice finance minister said that their plan of loosening restrictions in the currency market would give the status of the won a global boost.

He also added that it would provide local financial firms with more business opportunities. The new measures had been disclosed earlier this week.

The new measures

Under the new rules, the hours for trading won have been doubled until past midnight and the currency can be traded directly by qualified global financial firms via two brokerage houses onshore.

Bang Ki-sun, the Vice Minister, said that the government was working on additional measures and they would be implemented next year in July.

He dismissed the concerns that these measures could result in more volatility for the South Korean currency.

Bang said that they were not allowing the won to be traded outside the country freely, but only trying to make the currency more convertible.

He also added that the financial institutions that trade the won would continue to remain under government oversight.

It has taken just a couple of decades for South Korea to become one of the top 10 economies in the world, but it has kept its currency market under tight control.

This is primarily because of its trauma in the 1990s when it came very close to default during the Asian financial crisis.

The economy

The December quarter saw a contraction in the South Korean economy, but Bang asserted that the latest data showed the economy would return to growth in this year’s first quarter.

But, he did not provide details about the data he was referring to. He said that the huge foreign fund outflows that had been seen from the local bond market in the last two months in a row did not have any meaningful factor.

The only factor was that during this time, there was a large number of bonds that had reached maturity.

Real estate market risk

The Vice Minister also added that the cooling real estate market in South Korea will not put the larger financial system at risk.

He said that this was because the strains in the money market caused by property projects have been diffused with the help of policy measures.

In December, there had been a 1.98% decline in house prices in South Korea as compared to November, which is the fastest decline since 2003 and the seventh monthly decline in a row.

Bang said that individual companies could still be in trouble and they would come up with targeted measures for dealing with them, but he does not expect a broader systemic risk due to the real estate market.

There has been a rise of more than 200 basis points in a 3-month commercial paper yield in just a couple of weeks.

This is primarily because of worries about property developers defaulting on their debts. The central bank, the financial regulator, and the government has stepped in and offered a number of aid programs.

This has seen the yield drop by more than 100 basis points in just a few weeks.