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BOK Nominee Shin Hyun-song: Ample Dollar Reserves Buffer Weak Won

South Korea's central bank governor nominee, Shin Hyun-song, acknowledged the Korean won has remained at a high level against the U.S. dollar in recent months. He identified offshore non-deliverable forward trading as a significant factor driving the currency's depreciation. However, Shin stated the country's foreign exchange reserves are sufficient to act as a buffer against external financial shocks. Separately, data showed South Korea's money supply increased for the fourth consecutive month in February.

Key Points: BOK Nominee on Won Weakness, Dollar Liquidity Buffer

  • Won remains weak vs dollar
  • Sufficient FX reserves as buffer
  • Offshore NDF trading a key factor
  • Goal to boost won's global use
  • Money supply rose for 4th month
2 min read

Korean won weak, but dollar liquidity ample to buffer shocks: BOK chief nominee

BOK chief nominee Shin Hyun-song says Korea has sufficient dollar reserves to handle external shocks despite the won's recent depreciation.

"Excessive currency depreciation is not desirable. - Shin Hyun-song"

Seoul, April 15

The Korean won has remained relatively weak in recent months, but the country has sufficient dollar liquidity to respond to external shocks, Shin Hyun-song, nominee for the head of South Korea's central bank, said on Wednesday.

Shin made the remarks during a confirmation hearing at the National Assembly in Seoul, as he has been tapped to replace outgoing Bank of Korea (BOK) Gov. Rhee Chang-yong, reports Yonhap news agency.

"It is not appropriate to comment on the specific level, but it is true that the (won-dollar) exchange rate has remained at a fairly high level over the past few months," Shin said. "Excessive currency depreciation is not desirable."

The nominee, however, noted that the country's foreign exchange reserves remain sufficient to serve as a buffer against external shocks.

As a factor behind the won's weakness, Shin pointed to the significant influence of offshore transactions.

"There appears to have been a 'tail wagging the dog' phenomenon. Offshore non-deliverable forward (NDF) trading involving the Korean won has played a significant role in the currency's depreciation," Shin said.

"I will push to make the won more widely used globally and build an offshore settlement system so we can better manage the exchange rate and strengthen the currency's international standing," he added.

The won had hovered around the psychologically significant 1,500 won-per-dollar mark before easing to around the 1,450 level, as the conflict in the Middle East pushed up global oil prices and rattled global markets.

Meanwhile, South Korea's money supply rose for the fourth consecutive month in February, as increases in savings deposits offset a decline in certificates of deposit (CDs), central bank data showed.

The country's M2, a key gauge of the money supply, stood at an average of 4,114 trillion won (US$2.79 trillion) in February, up 600 billion won from a month earlier, according to the preliminary data from the Bank of Korea (BOK).

The figure rebounded in November after declining the previous month and has since posted monthly gains.

M2 is a measure of the money supply that includes cash, demand deposits and other easily convertible financial instruments.

"Demand deposit-type savings rose as idle funds awaiting fiscal execution by local governments increased," a BOK official said. "Marketable instruments, on the other hand, declined as the issuance of CDs fell due to worsening issuance conditions and reduced funding demand."

- IANS

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Reader Comments

P
Priya S
"Tail wagging the dog" is such an apt phrase for this situation! It shows how global financial markets can sometimes dictate terms to national economies. South Korea's ample dollar reserves are a good buffer, much like India's forex reserves help us during global shocks. Stability is key.
R
Rohit P
The Middle East conflict affecting oil prices and then currency markets halfway across the world in Korea... it's all connected. Reminds me of how global events cause rupee fluctuations. Hope their new central bank chief has a solid plan. A weak currency hurts import-heavy economies.
S
Sarah B
While it's reassuring they have dollar liquidity, the nominee's statement feels a bit generic. "Excessive depreciation is not desirable" – well, obviously! I'd like to hear more concrete steps beyond building an offshore system. What immediate measures are planned to manage the volatility?
K
Karthik V
The money supply data (M2) increasing for the fourth month is noteworthy. In our own context, monitoring such indicators is vital for inflation control. It seems like domestic savings are providing some cushion in Korea, similar to how strong domestic savings help the Indian economy.
M
Michael C
As someone who follows Asian economies, South Korea's situation highlights the challenge for export-led nations. A weak won boosts exports but makes imports (like oil) costlier. It's a delicate balance. Their focus on strengthening the won's global use is a strategic move for the future.

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