The size of the Korea Exchange Stabilization Fund will be cut by a record amount of more than 30% next year, but the South Korean government said that the reduced size of the Foreign Exchange Stabilization Fund is still sufficient to defend the Korean won.
The Zhitong Finance App learned that according to reports, the size of the Korea Foreign Exchange Stabilization Fund will be cut by a record of more than 30% next year, but the South Korean government said that the reduced size of the Foreign Exchange Stabilization Fund is still sufficient to defend the Korean won.
According to reports, the South Korean government plans to reduce the size of the Exchange Stabilization Fund from 205.1 trillion won this year to 140.3 trillion won in 2025. This is the largest reduction since the fund was established in 1967 to deal with excessive fluctuations in the won.
In response, Hee Jae Kim, director of the Foreign Exchange Market Department of the Ministry of Finance of South Korea, said in an interview: “The amount of foreign exchange reserves is sufficient, and the size of the fund's assets is sufficient to handle the foreign exchange market.” “A reduction in the size of the fund does not necessarily mean that its ability to respond to the foreign exchange market will decrease,” he added.
Min Gyeong-won, an economist at Korea's Woori Bank in Seoul, said, “The impact of reducing the size of the Exchange Stabilization Fund will be minimal, because foreign exchange reserves are currently more than three times the short-term foreign debt of South Korea.” “If the won falls, companies will sell off dollars in foreign exchange deposits. If the won appreciates, retail investors' demand for US dollars to invest in overseas stocks will also increase.”
According to the data, by the end of August, the exchange rate of the Korean won against the US dollar had fallen by 3.7% so far this year, making it the second-worst performing currency in the Asian region. Since this year, fluctuations in the Korean won have made the South Korean authorities uneasy. In April of this year, the International Finance Bureau of the Ministry of Finance of South Korea and Oh ?$#@$-hwa, director of the International Bureau of the Bank of Korea, issued a joint statement stating that they are closely monitoring exchange rate trends. Previously, the exchange rate of the won against the US dollar once fell to 1,400 won per dollar, the lowest level since 2022.
Since July, the South Korean government has extended the trading hours of the won. This is part of the South Korean authorities' efforts to push for its stocks and bonds to be included in more global indices. However, when liquidity is low, this may also cause the won to be more volatile.