As the Ministry of Finance and Economy requested the Bank of Korea (BOK) to mobilize its authority to issue banknotes to curb the rapid fall of the won-dollar rate (strong won) yesterday, the BOK decided to take an active role in buying the dollar by printing money.
Accordingly, although the won-dollar rate fell 8.7 won, compared with that of last weekend, shortly after the market opened and fell to 1060 won per dollar, the market closed at 1065.30 won, bolstered by the dollar-buying force.
Vice Prime Minister and Minister of Finance and Economy Lee Hun-jae and the BOK Governor Park Seung held an emergency breakfast meeting yesterday, and the BOK agreed to play a bolder and active role in taming the won.
To the question Did the ministry request the BOK to mobilize the authority to issue banknotes? an authority of the ministry replied, It will be all right to think so. Because the BOK doesnt have a separate fund, the BOKs active role in itself means that.
It means that the ammunition for exchange rate stabilization will switch from the Finance and Economy Ministrys national bond (foreign exchange stabilization bond) to the BOKs authority to issue banknotes.
Although the assembly-set yearly limit of foreign exchange stabilization bond is 18.8 trillion won, most of it was already used to issue bonds to defend the won-dollar rate, so the government was running out of ammunition needed in market intervention.
As the Finance and Economy Ministry and the BOK agreed to mobilize the authority to issue banknotes, it is expected that the foreign currency authoritys market intervention will become much more active.
Meanwhile, the Seoul Exchange Market closed with a won-dollar rate of 1065.30 won yesterday, falling 3.40 won since last weekend, but the 1060 won line was maintained due to the foreign currency authoritys intervention. The rate is the lowest in seven years after November 21, 1997 (1056 won).
Koreas Composite Stock Price Index fell 17.04 points (1.97 percent) from the previous day (November 19) and closed at 849.99 yesterday.
It was because foreigners and institutional investors massively sold their stocks because of concerns that the profitability of exporters will worsen as the fall in the won-dollar rate becomes larger.
Asian stock markets also could not avoid poor performances due to the worry concerning the weak dollar. For example, the average Nikkei stock price of the Tokyo Stock Market fell 2.11 percent compared with that of the previous day.