(Jan 23): South Korea is dusting off a tool last used 21 years ago to help stabilise its currency: issuing up to 20 trillion won (US$13.9 billion or RM61.6 billion) in special bonds.
Officials sold an initial 800-billion-won tranche of one-year securities on Thursday to top up the country’s foreign exchange stabilisation fund, which authorities use to fund interventions to quash volatility in the won. The deal priced at a yield of 2.75%, the Finance Ministry said.
The issuance comes as governments across Asia grapple with historically weak currencies, with the prospect of tariffs from Trump administration adding to the pressure. India is showing signs of loosening its vice-like grip on the rupee, while Indonesia this week announced new restrictions on firms’ repatriation of overseas earnings.
Korean policymakers have also been at pains to boost lackluster economic growth and counter what they term “excessive volatility” in the currency, though they don’t disclose details of their interventions immediately.
Authorities bought a net US$192 million worth of foreign exchange to curb volatility in the third quarter of 2024, according to the most recent data. The National Pension Service has also begun selling dollars, according to people familiar with the matter, a move that could result in purchases of about US$50 billion worth of local currency.
South Korea’s won sank to its weakest versus the dollar since 2009 late last month, weighed down by interest rate cuts and political uncertainty from the short-lived martial law decree by President Yoon Suk Yeol. The turmoil weakened the exchange rate by about 30 won, the Bank of Korea governor Rhee Chang-yong said.
Faced with a drop in tax revenue, the government slashed the size of the stabilisation fund 140.3 trillion won this year, from 205.1 trillion won in 2024. The decision to sell won bonds on Thursday also stems from the revenue shortfall because officials filled the gap by tapping sources such as the stabilisation fund.
The Finance Ministry’s offering of forex stabilisation debt was 1.74 subscribed. That’s higher ratio than the 1.4 achieved by the Bank of Korea’s Jan 8 sale of a one-year monetary stabilisation bond, used for liquidity management purposes.
This month’s forex bond sale is expected to be followed by further auctions. The Finance Ministry has said 12% to 15% of the volume will be offered in the first quarter, rising to 40% to 45% in the first half of 2025. The issuance amount is considered to be sufficient for smoothing market volatility, according to the ministry.
The Finance Ministry’s last local-currency denominated stabilisation bond was sold in 2003.
Uploaded by Magessan Varatharaja