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Foreigners Withdrawing from South Korean Stock Market for More U.S. Dollar
Won-dollar Exchange Rate Soars
Foreigners Withdrawing from South Korean Stock Market for More U.S. Dollar
  • By Jung Suk-yee
  • March 18, 2020, 09:00
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The won-dollar exchange rate has topped 1,240 won per U.S. dollar for the first time in a decade. 

The won-dollar exchange rate closed at 1,243.5 won per U.S. dollar on March 17.

The won-dollar exchange rate jumped 17.5 won on March 17, closing at over 1,240 won per U.S. dollar for the first time in about a decade. The rate spiked for the fourth consecutive day even after the foreign exchange authorities mentioned the possibility of market intervention.

The rate closed at 1,243.5 won per U.S. dollar after rising 50.5 won for four trading days in a row. It topped 1,240 won per U.S. dollar for the first time since June 11, 2010. The U.S. stock market plunged again the previous day, and then the exchange rate continued to rise from the opening price of 1,231 won.

At present, foreigners are withdrawing from the South Korean stock market and selling the South Korean currency to accumulate the U.S. dollar as a safe asset. On March 17, the Korea Composite Stock Price Index (KOSPI) dropped 2.47 percent to close at 1,672.44 points, the lowest level in about 101 months. Foreigners recorded a net selling of 1,009.3 billion won on March 17. Their net selling continued for nine days and topped 13 trillion won since the first confirmed COVID-19 infection in South Korea on Jan. 20.

In the foreign currency money market, the liquidity of the U.S. dollar is decreasing at a rapid pace. This is because foreign banks are applying reduced U.S. dollar credit lines to their branches in South Korea for the purpose of risk control and South Korean securities companies are placing increasing demands for the U.S. dollar for hedging in the plunging stock market.

Moreover, the credit default swap premium of South Korea, which stood at 22 basis points at the end of 2019, rose to 54 basis points on March 16. In other words, the default risk of South Korea is on the increase and less and less are willing to keep its currency.

Still, the foreign exchange authorities are maintaining that the U.S. dollar liquidity is sufficient by mentioning local banks’ foreign currency liquidity coverage ratio, which was 128.3 percent and sufficiently exceeded the minimum requirement of 80 percent at the end of last month. However, experts point out that the authorities need to implement practical liquidity enhancement measures.