South Korea’s New FX moves Will strengthen Won

South Korea is set to make changes to its currency market, which will elevate the status of its won globally and create new business opportunities for local financial institutions. The new measures, announced earlier this week, will allow the trading hours of the won to be extended until past midnight, and will allow eligible global financial institutions to trade the currency directly through two onshore spot brokerage houses.

According to Vice Minister Bang Ki-sun, the government is working on further measures to implement the plans by July 2024. The vice minister brushed off concerns that the changes could result in increased volatility of the won, saying that the government would still maintain control over financial institutions trading the won. He stated that the changes were not a full liberalisation of the won, but simply aimed to make the currency more convertible.

Despite South Korea’s growth into one of the world’s top ten economies, it has maintained a tight grip on its currency market, stemming from the trauma of its near sovereign default during the Asian financial crisis in the late 1990s. In the December quarter of last year, South Korea’s economy contracted, however, Bang stated that the most recent data indicated growth would return in the January to March period.

Regarding the recent foreign fund outflows from the local bond market, Bang stated that there was no significant factor, apart from a large amount of bonds coming to maturity during the period. He also brushed off concerns of a systemic risk from South Korea’s cooling real estate market, saying that policy measures have effectively diffused any money market strains related to property projects.

In regards to the won’s rapid gain of more than 15% over the past three months, Bang downplayed its impact on exports, saying that the country’s exporters now compete on brand power and quality rather than price. He stated that South Korea should focus more on quality competitiveness, which has become increasingly important in the country’s changing export structure.