The government has decided to announce measures in February to address the risk of foreign investors’ failure to settle foreign exchange payments as part of the structural improvements in South Korea’s foreign exchange market, which are set to begin in earnest in July.
The plan is to manage the risks that may arise from foreign financial institutions participating in the foreign exchange market as Registered Foreign Institutions (RFIs) and allowing third-party FX transactions in line with global standards.
According to the Ministry of Economy and Finance (MOEF) on Feb. 6, First Vice Minister Kim Byoung-hwan has decided to pursue improvements in related regulations by accommodating the opinions of investors during a briefing held the previous day in London aimed at local global investors.
The specific measures will be announced by the MOEF later this month after consultations with the Financial Services Commission and the Bank of Korea, among other relevant agencies.
During the briefing, First Vice Minister Kim explained the current economic situation in South Korea and the policy directions of the second economic team. He also discussed the progress and future plans regarding the advancement of foreign exchange market structural improvements.
As part of the foreign exchange market structural improvements, RFIs will enter the market, and the opening hours will be extended until two o’clock in the early morning of the next day.
Global investors have expressed the hope that these changes will not only involve participants in interbank foreign exchange markets but also lead to tangible improvements in foreign exchange convenience for actual foreign stock and bond investors, who are the real demanders of foreign exchange.
Additionally, First Vice Minister Kim addressed some misunderstandings among certain foreign investors regarding the scale of foreign exchange hedging available for foreign financial institutions investing in Korean won-denominated assets, clarifying that it is not limited to the actual demand range, which corresponds to the value of invested Korean won assets.
He emphasized that there is no need to further reduce hedging volumes in situations of over-hedging that may occur when the value of invested won-denominated assets depreciates.
First Vice Minister Kim assessed the ongoing measures to improve the foreign exchange market structure as an “important first step” towards enhancing foreign investors’ accessibility to the Korean won to the level of advanced currencies. He also emphasized the continuous improvement of foreign exchange institutions and infrastructure, pledging to listen to investors’ opinions as often as possible.