Korean FX Market to Get $10 Bln Injection

More than 10 billion U.S. dollars will be injected into Korea’s foreign exchange market to ease greenback shortages.

Whether the dollar injection will help financial institutions and companies who suffer from a dollar deficiency remains unclear, however.

Choi Jong-ku, director general of the international finance bureau at the Strategy and Finance Ministry, told reporters yesterday, “By October, the government will inject as much as 10 billion dollars drawn from the foreign exchange stabilization fund into the domestic currency swap market. As the Bank of Korea will also pour dollars into the market, more than 10 billion dollars will be injected. If needed, we will supply more dollars.”

“The massive dollar injection could cause a temporary reduction in foreign reserves at the end of October. Given the nature of the swap market, however, no impact is expected.”

The rare government move to intervene in the swap market stems from the judgment that liquidity shortages in the domestic market have reached an unattainable level, experts said. Until now, state intervention had focused on the foreign currency spot market.

Ministry official Shin Je-yoon told business leaders at the Korea Forum for Progress, “In the international financial market, seven-day loans have disappeared and transactions are being made only with overnight loans. The financial crisis originating from the U.S. is drying up liquidity.”

The won extended its loss against the greenback for five consecutive trading days, falling 2.3 points from Thursday to close at 1160.5 won.

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