Shin Hyun-Song: "Exchange Rate Remains High Recently... Over-the-Counter Derivatives Trading Causing 'Tail Wagging the Dog'"

Hyun Song Shin, nominee for Governor of the Bank of Korea, stated on the 15th, "It is true that the exchange rate has remained at a considerably high level in recent months," adding, "It seems that due to the large volume of over-the-counter derivatives trading, the tail is sometimes wagging the dog."

Hyun Song Shin, nominee for Governor of the Bank of Korea, appears at the parliamentary hearing held by the National Assembly's Finance and Economy Committee on the 15th, responding to questions from lawmakers.

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Shin made these remarks in response to a question from Jin Sung-joon, a member of the Democratic Party of Korea, regarding concerns about the high exchange rate during the personnel hearing at the National Assembly's Finance and Economy Committee on the same day.

Shin explained, "When there is a major change, such as in March this year when the financial system itself was shocked, the market sometimes functions through movements that are not captured in capital flows," adding, "In particular, the forward exchange market seems to play a very important role."

He further noted, "Not only this time, but also last April during the U.S. mutual tariff issue and two years ago when the yen carry trade was unwound, there were more transactions through over-the-counter derivatives rather than book-entry capital outflows. In this case as well, offshore Non-Deliverable Forward (NDF) trading involving the Korean won appears to have played a significant role," adding, "It seems that the tail-wagging-the-dog phenomenon occasionally occurs."

Shin also commented, "One of the reasons for promoting the internationalization of the Korean won and establishing an offshore won settlement system is to manage the influence of exchange rates and the status of the won across the broader financial system."

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