South Korea warns it may curb derivatives as won rallies
South Korea warned on Thursday it was ready to take action, such as lowering the ceilings on banks’ foreign exchange derivatives positions as early as next week, to stem the won’s strength that it said was ”excessive”.
The won wiped out early gains against the dollar after Deputy Finance Minister Choi Jong-ku made the strongest set of warnings in months at an unscheduled media briefing.
“We are close to the stage in which specific steps need to be taken,” Choi told the briefing, adding there were “excessive expectations” for the won’s strengthening.
The won was quoted at 1,084.9 per dollar at 9:52 am (HK time), down sharply from a session high of 1,080.2 touched early in the morning and compared with Wednesday’s domestic close of 1,083.2.
Choi said lowering currency derivatives ceilings at banks was the government’s first option, and the finance ministry would try to finally decide by next week whether to impose the measure.
The Bank of Korea and the Financial Supervisory Service earlier this month began a joint inspection of foreign-currency trading by banks operating in the country. Lowering the caps on banks’ currency trading positions would reduce the amount of speculation on the local currency.
The won has gained more than 6 per cent against the dollar so far this year, with the pace of that appreciation accelerating since September. Its value against the Japanese yen, however, has risen more than twice as fast by more than 14 per cent due to the weakening of the yen against the US dollar.