The government hinted it could take additional macroprudential stabilization steps if measures to stabilize the foreign exchange market have limited effect, citing a wide gap between the current won-dollar exchange rate and Korea's economic fundamentals.
Choi Ji-young, director-general for international economic policy at the Ministry of Economy and Finance, held a press briefing on the foreign exchange market on the afternoon of the 15th and said, "Given our macroeconomic situation, there are aspects in which the current exchange rate level is not aligned," adding, "If the policies we have prepared fail to deliver results, we will have no choice but to consider macroprudential measures to restore and maintain macroeconomic stability."
Choi also explained the context behind U.S. Treasury Secretary Scott Bessent's verbal intervention the previous day that "the won's weakness is inconsistent with Korea's solid economic fundamentals."
Choi said, "Working-level and high-level exchange of views between the Korean and U.S. finance authorities on the foreign exchange market has been ongoing," adding, "This remark came within that shared understanding." She added, "The Korean government did not ask the U.S. side for a verbal intervention, and it reflects the recognition that a stable foreign exchange market flow is important in the process of implementing Korea-U.S. strategic investments."
On the exchange rate trend after Minister Bessent's remarks, Choi said, "In the overnight and offshore markets, the rate formed in the low 1,460-won range, and after the regular session opened, both dollar selling and buying demand appeared mainly among foreigners," explaining, "Foreign investors seem to share the perception that the current rate is out of line with fundamentals." However, she added, "In the domestic market, speculative demand that treats further gains as a given continues, pushing the rate back up."
The government first plans to assess the effectiveness of existing foreign exchange market stabilization measures. Choi said, "Tax support is set to begin in early February, and the 'new framework' related to the National Pension Service's currency risk management is still under discussion," adding, "It is too early to judge policy effects."
However, Choi said that if instability in the foreign exchange market widens, macroprudential steps used in the past could be back on the table. "In the past, we introduced the so-called 'macroprudential three-piece set,' including limits on forward FX positions, a foreign exchange stability levy, and taxation on foreign bond investments," Choi said. "While today's situation is different, we are reviewing what measures are possible."