South Korean authorities have escalated their efforts to stabilize the Korean Won (KRW) by intensifying foreign exchange (FX) monitoring and supervision, according to Commerzbank. The Financial Supervisory Service (FSS) has shifted from monthly to weekly reviews of major banks’ FX positions, with the possibility of moving to daily reviews if the KRW does not stabilize. This marks a significant increase in regulatory scrutiny, as authorities aim to curb speculative pressure on the currency [1].
Additionally, the Bank of Korea (BoK) and the FSS are set to conduct joint inspections of major FX banks for the first time in 14 years. These inspections will assess whether trading activities have destabilized the market or if participants have attempted to manipulate exchange rates for improper gains, with strict penalties for violations. Authorities have also urged banks to avoid aggressive marketing of dollar deposits or positioning that could exacerbate KRW volatility [1].
The USD/KRW exchange rate is consolidating around 1,520 after reaching 1,558 last Friday, its highest level since 2009. Year-to-date, the KRW has depreciated by 5.4%, making it the third worst-performing Asian currency after the Indian Rupee (INR, -5.9%) and the Indonesian Rupiah (IDR, -7.3%). However, following the latest regulatory measures, the KRW has strengthened by more than 2% against the USD so far this week [1].
The KRW has faced pressure from net foreign equity outflows, higher oil prices, and ongoing geopolitical uncertainties related to the Middle East. Despite these challenges, the Kospi remains one of the best-performing equity markets globally, up 83% year-to-date, even after a correction of over 12% from last week's peak. Last year, the Kospi gained 76%, driven by the AI boom [1].
Commerzbank suggests that the recent steps by South Korean authorities may help curb speculative pressure on the KRW in the near term [1].
CONCLUSION
South Korea's move to tighten FX oversight and supervision is a direct response to recent volatility and speculative pressure on the KRW. The measures have already contributed to a short-term strengthening of the currency, and authorities hope continued vigilance will further stabilize the market.