Won-denominated foreign exchange equalization fund bonds (foreign exchange equalization bonds) will begin issuance in January next year. Although the government's initial plan for 'issuance within the year' was not realized, the amendment of the law for the issuance of won-denominated foreign exchange equalization bonds was finalized in the last-minute review of the parliamentary budget, allowing for stable issuance from early next year.
Foreign exchange equalization bonds are a type of government bonds issued and guaranteed by the South Korean government to stabilize the foreign exchange market. In periods of rising won-dollar exchange rates, 'dollar-denominated' foreign exchange equalization bonds are issued, while in periods of decline, 'won-denominated' foreign exchange equalization bonds are issued to raise funds to be accumulated in the foreign exchange equalization fund. With a large depletion of the won stored in the foreign exchange equalization fund to address a tax revenue shortfall for two consecutive years, the issuance of won-denominated foreign exchange equalization bonds has become necessary.
According to the government and bond market as of the 25th, the Ministry of Strategy and Finance recently held practical consultations with the Bank of Korea and primary dealers of government bonds, setting Jan. 24 next year as the bid date for won-denominated foreign exchange equalization bonds. The maturity will be one year, and while the issuance size for the first month has not been determined, it is expected to be around 2 trillion won.
Won-denominated foreign exchange equalization bonds were last issued in 2003. For over 20 years, the won within the foreign exchange equalization fund has been borrowed from the Public Capital Management Fund. However, since the Public Capital Management Fund is typically raised through 10-year government bonds with high interest rates, the cost is higher. In comparison, won-denominated foreign exchange equalization bonds focus on short-term bonds such as one-year bonds, making them cheaper. This is the official reason given by the government for issuing won-denominated foreign exchange equalization bonds to 'improve the financial balance of the foreign exchange equalization fund.'
Another reason for promoting the issuance of won-denominated foreign exchange equalization bonds is related to the 'tax revenue shortfall.' The Ministry of Strategy and Finance failed to predict tax revenues for 2023 and 2024 for two consecutive years. Last year, there was a 56 trillion won tax revenue shortfall, and this year's shortfall is expected to be 29.6 trillion won. To cover this shortfall, won resources within the foreign exchange equalization fund were utilized. Last year, 24 trillion won was mobilized, and this year, up to 6 trillion won is expected to be used. Refilling the large amount of won used will enable the foreign exchange equalization fund to fulfill its role during periods of declining won-dollar exchange rates. Although there is no immediate need due to the current high exchange rates, preparation for the future is necessary.
For this reason, the government attempted to issue won-denominated foreign exchange equalization bonds for the first time this year. The plan for issuance was reflected in this year's budget at a scale of 18 trillion won. However, due to the passage of time, 'technical' legal adjustments for the issuance were necessary. The related amendment bill, which was only pending amidst other matters in the National Assembly, was dramatically passed on the 10th as a 'tax revenue supplemental bill' for the 2025 budget. According to the recently confirmed 2025 budget, the government has planned to set a limit for the issuance of won-denominated foreign exchange equalization bonds at 20 trillion won.
The Ministry of Strategy and Finance did not rule out the possibility of 'within the year' issuance due to the passage of the law. However, due to concerns about supply and demand burdens from 'book closing' and urgent issuance schedule announcements, it was finally decided to start the issuance of won-denominated foreign exchange equalization bonds from January next year. Although the 18 trillion won issuance for this year did not materialize, the planned 20 trillion won for next year can be issued stably.
The Ministry of Strategy and Finance plans to announce the specific won-denominated foreign exchange equalization bond issuance plan in the 'January 2025 government bond and treasury bond issuance plan' the following day, and the '2025 annual government bond issuance plan' later in the week.