Financial Sector to Obtain Dollar Supply Using Held US Treasury Bonds (Comprehensive)

[Asia Economy Reporter Kim Eunbyeol] The Bank of Korea and the Ministry of Economy and Finance have prepared additional measures to supply foreign currency liquidity. This method allows financial companies facing foreign currency liquidity shortages to receive US dollars from the Bank of Korea by utilizing their foreign currency bonds.

On the 30th, the Bank of Korea and the Ministry of Economy and Finance announced, "We are promoting the introduction of a foreign currency liquidity supply system through a competitive bidding repurchase agreement (RP) foreign currency bond transaction," adding, "The Bank of Korea will use its foreign exchange reserves to purchase foreign currency bonds held by domestic financial companies such as banks, insurance companies, and securities firms under repurchase agreements and supply US dollar funds."

The advantage is that since the Bank of Korea supplies foreign currency funds while purchasing foreign currency bonds from financial institutions, there is no change in the size of foreign exchange reserves, and the purchased bonds can be disposed of at any time, so the availability of foreign exchange reserves is not restricted.

A Bank of Korea official stated, "With the introduction of this system, it is expected to stabilize the swap market by partially absorbing the structural foreign currency fund demand of non-bank financial companies such as insurance and securities firms."

The target institutions are non-bank financial companies such as banks, insurance companies, and securities firms. Considering foreign currency fund conditions, the Bank of Korea said it may also consider bidding for specific sectors or institutions if necessary. For now, only US Treasury bonds can be used, but if needed, other bonds such as US government agency bonds will also be tradable. As of the end of February, insurance and securities companies hold approximately $23.2 billion in US Treasury and government agency bonds.

The RP period will be operated within 88 days but may be adjusted if necessary, which is the same as the foreign currency loan period using currency swap funds with the US Federal Reserve (Fed). A Bank of Korea official said, "The supply scale will be determined considering the supply and demand situation in the swap market and the holding status of foreign currency RP target securities."

Follow-up measures such as system construction for the implementation of this system are expected to be completed before the end of September.

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