South Korean Government Decides To Limit Currency Forwards

The South Korean Government has decided to put a limit on the amount of the Won forward positions that the banks will be allowed to hold. The transaction at branches of overseas lenders is currently at 200% of equity currently and the same will be capped to 150%. The decision was confirmed through a joint statement made from Bank of Korea, Finance Ministry and The Financial Services Commission. The ceiling for the domestic Korean banks will also be cut down to 30% from 40%. The changes are going to take effect from 1st December, 2012. However, a one month grace period will be given, if banks want to opt for that.

Since last June, Won has showed huge gains against USD. It has also gone ahead by 5.7% marking the biggest gain of a major Asian currency against USD. However, it retreated a bit last week under speculations of some measurements to be taken by South Korean Government to handle the high Won price. Incidentally, a high Won price threatens the exports of the country and in the first 10 months of this year, exports have actually declined in 7.

However, the measurements may not end right there. The South Korean Government officials are reportedly discussing the possibility of further regulations imposable on foreign exchange. The Financial Services Commission’s chairman, Kim Seok Dong confirmed this news.

According to a currency analyst for Samsung Futures Inc., Jeon Seung Ji, such a decision on the forward limits was kind of expected. However, Jeon added that as the USD liquidity in this Asian country is in a stable state, such announcements may not curb the Won much in reality.

The Won has actually surged by 0.1% today and is priced at 1084.08 per USD. The benchmark index of South Korea, KOSPI has also climbed up by 0.9%. Incidentally, on 22nd November, the currency reached a price of 1080.05 per USD, the highest value since 9th September, 2011. Incidentally, such regulations in the foreign exchange system of the country were earlier introduced in 2010 as well.

Jeong Young Sik, a renowned economist of the country stated that the outlook will continue being bullish for the major South Korean currency even in 2013. The investors are more confident about the fundamentals of South Korea and liquidity is also flooding in from the other advanced countries.