Gov’t to relax forex liquidity regulations to push U.S. dollars into market

Government officials pose for a photo before an inter-ministerial meeting on measures to strengthen foreign currency liquidity held at the government complex in Jongno District, central Seoul, on Dec. 18. From left, Financial Supervisory Service Gov. Lee Chan-jin, Deputy Prime Minister and Finance Minister Koo Yun-cheol, Financial Services Commission Chairman Lee Eog-weon and Bank of Korea Senior Deputy Gov. Ryoo Sang-dai. [YONHAP]

 
The government will relax foreign currency liquidity regulations for banks and exporters and urge securities firms to curb overseas investment promotions in an effort to push more U.S. dollars into the market and slow the won’s prolonged decline. 
 
The Ministry of Economy and Finance jointly announced the measures on Thursday with the Finance Ministry, the Financial Services Commission (FSC), Bank of Korea (BOK) and Financial Supervisory Service (FSS).
 
Officials said the goal is to ease dollar shortages by encouraging banks and companies to release foreign currency they are holding.  
The Finance Ministry explained that the existing regulations were designed mainly to limit excessive capital inflows and did not sufficiently account for the recent trend of sustained foreign exchange outflows due to outbound investments by Korean individuals.
 
The won strengthened against the dollar on Thursday, closing at 1,478.3 won per dollar in the Seoul foreign exchange market, down 1.5 won from the previous day.
 
A key step is easing requirements on banks’ dollar reserves. Currently, financial institutions are required to maintain a certain level of foreign currency reserves to prepare for crisis scenarios. If the financial authorities judge these reserves insufficient, the institutions must submit a foreign exchange replenishment plan.
 

Government officials pose for a photo before an inter-ministerial meeting on measures to strengthen foreign currency liquidity held at the government complex in Jongno District, central Seoul on Dec. 18. [YONHAP]

 
Authorities believe this requirement has led banks to hold more dollars than necessary. As a result, the obligation to submit these plans has been temporarily suspended through the end of June 2026.
 
“There are cases where banks are unnecessarily holding onto dollars rather than releasing them into the market,” said Jeong Yeo-jin, director of the Foreign Exchange System Division at the Finance Ministry. “Easing this regulatory burden will allow this liquidity to return to the market.”
 
The government will also raise the cap on forward exchange positions for foreign bank branches in Korea, such as Standard Chartered Bank Korea and Citibank Korea. The limit will increase from 75 percent of equity capital to 200 percent. The rule had been intended to prevent excessive dollar-denominated borrowing.  
 
For example, a foreign bank branch with 10 trillion won ($6.76 billion) in capital was previously limited to 7.5 trillion won in forward exchange positions. Now, they will be able to raise up to 20 trillion won in dollars through forward contracts, potentially injecting more greenbacks into the domestic market.
 
“To prevent a sudden surge in external debt, we are initially relaxing the cap to 200 percent and will adjust it further depending on market conditions,” a Finance Ministry official said.
 

The Korean won is seen quoted above the 1,478-range on an electric board at a Hana Bank dealing room in Jung District, central Seoul on Dec. 18. [YONHAP]

 
Support for exporters will also increase, allowing them to take out dollar loans not only for capital expenditures but also for operating costs such as payroll. The goal is for companies to borrow in dollars, convert them to won for domestic use, and thereby boost dollar supply in the local market.
 
Investment by foreign individuals in Korean stocks will also be made easier. Foreign nationals will be able to buy Korean shares through their local brokers without opening accounts with domestic securities firms, under an initiative to promote the use of consolidated investor accounts.
 
Authorities also plan to ease procedural barriers faced by foreign companies listed overseas when investing in Korea.
 
While such companies are automatically granted professional investor status, this was not well communicated to domestic financial institutions, which often required pre-approval and additional documentation for foreign exchange derivative trades.
 

A currency exchange in Myeongdong, Jung District, central Seoul is seen on Dec. 17. [NEWS1]

 
Securities firms will also suspend new overseas investment marketing campaigns. Authorities have cited rising demand for overseas investment by retail investors as one of the factors weakening the won. The FSS held a meeting with brokerages on Thursday, urging them to refrain from promoting foreign stock trades.
 
“Brokerages have focused on boosting short-term commission revenues while neglecting investor protection,” said FSS Gov. Lee Chan-jin. “While brokerages have seen a sharp rise in profits from trading and exchange fees, many individual investors are posting losses or seeing reduced returns.”
 
In response to this pressure, securities firms are expected to suspend promotional events such as offering investment support funds or waiving commission fees for new account holders. Ongoing marketing campaigns will also be reviewed for legal compliance and likely terminated early.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY AHN HYO-SEONG [[email protected]]