BOK Governor Shin: Currency Swaps for Liquidity, Current Levels Adequate

Bank of Korea Governor Shin Hyun-song stated on July 9 that currency swaps reinforce liquidity and current levels are not insufficient. Shin made these remarks at the National Assembly Finance and Economic Planning Committee in response to Democratic Party lawmaker Moon Jin-seok's question regarding the necessity of a Korea-US currency swap. The testimony comes amid recent volatility in the won exchange rate driven by US monetary policy expectations and foreign investor portfolio adjustments.

BOK Governor Assesses Currency Swap Purpose and Current Liquidity Status

Shin acknowledged that currency swaps would have symbolic and psychological benefits for the won's value, but emphasized their primary function. "Currency swaps are primarily mechanisms to provide liquidity when liquidity is depleted. In the current situation, liquidity is not insufficient," Shin stated during the committee session.

The governor added that discussions on such matters always occur within the framework of government-to-government and central bank-to-central bank cooperation.

Shin Identifies US Monetary Policy and Foreign Investment as Exchange Rate Drivers

Shin identified two primary causes for the recent won exchange rate rise: potential changes in US monetary policy leading to dollar strength, and foreign investors' portfolio rebalancing.

"In the short term, supply and demand are important determining factors, but in the long term, there is also fundamental value," Shin explained. He noted that the current account surplus is accumulating significantly and expressed his view that "from the basic economic framework perspective, there is considerable room for the won to return to strength going forward."

FAQ

What did BOK Governor Shin say about Korea-US currency swaps on July 9?

Shin stated that currency swaps are mechanisms to reinforce foreign exchange liquidity when it is depleted, but assessed that current liquidity levels are not insufficient. He acknowledged symbolic and psychological benefits but emphasized the primary purpose is addressing liquidity shortages.

Why did Shin identify as causes for recent won exchange rate movements?

Shin cited potential changes in US monetary policy causing dollar strength and foreign investors' portfolio rebalancing as the main drivers of recent won exchange rate rises. He noted that while short-term supply and demand are important factors, long-term fundamental value also plays a role, with the large accumulated current account surplus suggesting potential for won strengthening.