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South Korean authorities stepped up efforts to stabilize the foreign-exchange market after the won weakened further, cementing its status as Asia’s worst-performing currency in the second half of the year. The central bank and government announced additional measures following an unscheduled meeting aimed at easing pressure on the currency.
Emergency measures to boost liquidity
The Bank of Korea and the government said they will temporarily waive the foreign-exchange stability levy for banks and pay interest on excess foreign-currency deposits held by financial institutions. The measures will remain in place for six months and are designed to encourage banks to accumulate more foreign-currency liquidity.
Officials said the steps would help address imbalances in short-term foreign-exchange supply and demand and extend dollar liquidity measures announced earlier by the finance ministry.
Won remains under pressure
The won has fallen about 8% against the US dollar in the second half of the year, making it the weakest Asian currency over that period. Authorities have already deployed a range of tools to support the currency, including dollar sales by the National Pension Service and tighter rules on local brokerages’ promotion of overseas equities.
Despite these efforts, the currency continued to slide, dropping around 0.3% on Friday as it tracked movements in the Japanese yen following the Bank of Japan’s rate decision.
Focus on market functioning
By waiving the foreign-exchange stability levy, authorities aim to reduce the cost of overseas borrowing for banks, enabling them to build up foreign-currency buffers. The finance ministry said the move should strengthen the financial system’s ability to absorb market stress without resorting to heavy-handed interventions.
The levy was originally introduced to curb excessive foreign borrowing and limit the growth of the country’s external liabilities, underscoring the trade-off policymakers now face between financial stability and currency support.
Smoothing rather than fixing the rate
Officials reiterated that they will continue smoothing operations to counter excessive one-sided moves in the exchange rate, while avoiding explicit targeting of a specific level for the won. This approach reflects a preference for maintaining market-based pricing while reducing volatility.
Broader regional pressures
The won’s weakness comes amid heightened sensitivity of Asian currencies to policy moves by major central banks, including the Bank of Japan and the US Federal Reserve. Fluctuations in the yen and dollar have added to regional currency volatility, amplifying pressure on emerging and export-oriented economies.
As International Investment experts report, South Korea’s latest actions signal a shift toward liquidity-based stabilization rather than direct currency intervention. While this may help calm markets in the near term, the won’s longer-term trajectory will remain closely tied to global financial conditions and investor confidence.