Government, Bank of Korea All Out to Stabilize Exchange Rate...curbing market dollar demand

As the won-dollar exchange rate topped 1,450 won, reaching its highest level since the financial crisis, the government and the Bank of Korea are making all-out efforts to stabilize the foreign exchange market.

Foreign exchange authorities say they will increase the cap on foreign exchange swaps with the National Pension Service by $15 billion to $65 billion and extend the contract deadline by another year to the end of next year.

Foreign exchange swaps are raised first from foreign exchange reserves and later returned when the National Pension Service needs dollars to purchase overseas assets, which have a stabilizing effect on the foreign exchange market.

The National Pension Fund Management Committee has also decided to extend the deadline for raising the foreign exchange hedge ratio by up to 10% until next year.

When the won-dollar exchange rate level is high, foreign currency hedging helps stabilize the foreign exchange market by selling some of its overseas assets in advance through forward exchange.

The financial authorities also asked major banks to actively consider flexible adjustments in corporate foreign currency settlements and loan maturities.

Adjustment of foreign currency settlements and the maturity of foreign currency loans will ease the burden of foreign exchange supply and demand by eliminating companies from having to raise foreign currency at higher exchange rates at the end of the year.