The Bank of Korea (BOK) and the Financial Supervisory Service said they will launch a joint foreign-exchange inspection of domestic commercial banks starting on the 10th. Recently, the won-dollar exchange rate topped 1,560 won during intraday trading before easing to the 1,510-won range following verbal intervention by the foreign-exchange authorities. However, with volatility still high, authorities were said to be looking into whether there were speculative transactions.
The joint foreign-exchange inspection is based on Article 20 of the Foreign Exchange Transactions Act and Article 35 of its Enforcement Decree. Under these provisions, the Bank of Korea (BOK) and the Financial Supervisory Service can jointly conduct inspections of institutions handling foreign-exchange operations. The last time the two agencies carried out a joint foreign-exchange inspection was in 2010, when the exchange rate plunged after the global financial crisis.
The Bank of Korea (BOK) and the Financial Supervisory Service (FSS) said, "The purpose of this inspection is to check whether there were acts that disrupted the stability of the foreign-exchange market, such as foreign-exchange banks moving or fixing exchange rates to obtain undue profits or to allow a third party to obtain undue profits." They added, "If we identify any illegalities by banks, we will take stern action in accordance with the relevant laws and regulations."
In the financial industry, the view is that this probe is less about detecting illegal acts in advance and more a type of market intervention aimed at stabilizing the exchange rate. That is because the prevailing analysis is that the recent rise in the exchange rate stems more from net stock selling by foreigners than from speculative transactions. In addition, exporters and others stockpiling dollars is a managerial decision, and if it was reported in a timely manner, it is difficult to punish.