Financial Markets, Korea-US Currency Swap Shows Effectiveness

KOSPI Recovers Above 1500 Intraday... Sharp Drop in Exchange Rate
Foreigners' Cash-Out Demand Calms in Bond Market
Lee Ju-yeol "Dollar Supply Soon After Currency Swap Agreement Drafted"

On the 20th, as the KOSPI and KOSDAQ indices started higher, dealers were busy working in the KB Kookmin Bank dealing room in Yeouido, Yeongdeungpo-gu, Seoul. The won-dollar exchange rate opened at 1,253.7 won, down 32.0 won. Photo by Moon Honam munonam@

[Asia Economy Reporter Eunbyeol Kim] The domestic financial market, which had been weighed down by the COVID-19 pandemic, is finally showing signs of recovery. News of the agreement to establish a currency swap between Korea and the United States has alleviated concerns over foreign currency liquidity, acting as a much-needed relief for the domestic financial market. The KOSPI recovered above the 1500 mark during trading, and the won-dollar exchange rate, which had threatened to surpass 1300, sharply declined.

As of 10:43 a.m. on the 20th in the Seoul foreign exchange market, the won-dollar exchange rate stood at 1,259.11 won per dollar, down 26.62 won from the previous day. The rate started at 1,253.7 won, down 32 won, and has maintained a decline in the 20-won range. The agreement on the Korea-US currency swap the previous day appears to have calmed the surge in the exchange rate.

The Korean stock market, which had been plunging continuously, is also showing signs of stabilization. As of 10:32 a.m. on the same day, the KOSPI was at 1,503.83, up 3.17% (46.22 points) from the previous trading day. The KOSDAQ index also rose 4.03% (17.27 points) to 445.62 compared to the previous day. However, foreign investors continued their net selling for the 12th consecutive trading day, selling 52.3 billion won as of this time. Individual and institutional investors were net buyers, purchasing 34.8 billion won and 3.7 billion won respectively.

In the bond market, foreign investors’ demand for cashing out also appears to be easing. As of 9:35 a.m. in the Seoul bond market, the yield on 3-year government bonds fell 6.6 basis points (1 bp = 0.01 percentage points) from the previous day to an annual rate of 1.127%.

The Bank of Korea announced the previous day that it had agreed to a bilateral currency swap agreement with the U.S. Federal Reserve (Fed) worth 60 billion dollars. The contract period is at least six months (until September 19, 2020). This is twice the size of the agreement made during the 2008 global financial crisis.

Lee Ju-yeol, Governor of the Bank of Korea, said to reporters on his way to the Bank of Korea headquarters that day, "We expect the Korea-US currency swap agreement to contribute to easing instability in the domestic foreign exchange market." Governor Lee added, "The agreement with the U.S. Fed is on the conclusion of the contract, and now we will proceed to draft the contract. Once the contract is drafted, we plan to supply dollars to the market immediately." He also mentioned that extending the currency swap is possible if necessary.

Kim Yong-beom, First Vice Minister of Strategy and Finance, also stated at the Innovation Growth Strategy Review Meeting and Policy Review Meeting that day, "The Korea-US currency swap agreement is twice the size of the one during the 2008 global financial crisis," adding, "It will serve as a strong safety net to stabilize the domestic foreign exchange market, which was affected by global financial instability."

This content was produced with the assistance of AI translation services.