BOK governor nominee says won's weakness not a crisis, ample dollar liquidity a buffer

Shin Hyun-song: Won's Fall Isn't a Crisis, Reserves Are a Buffer

The Bank of Korea's only nominee for governor, Shin Hyun-song, said in a written response to the National Assembly that the recent decline of the won against the dollar does not signal a crisis, given South Korea's ample foreign reserves and robust economic fundamentals.

The nominee said in a statement to the lawmakers that authorities stand ready to respond appropriately to excessive exchange-rate volatility if needed, but `I do not place much weight on the exchange rate level itself. What matters is whether the market can absorb the risks involved, and in that respect there are no major concerns." He added that strong dollar liquidity means there is no need to directly link exchange-rate moves with financial instability, which was often the case in the past.

The won recently hovered near the psychologically important 1,500-won-per-dollar level, weakening to as low as around 1,510 before closing last week as the Middle East conflict pushed oil prices and rekindled economic impact fears worldwide.

The currency opened Monday at 1,495.8 won per dollar, down 12.9 won from the previous session and near its weakest since early 2009, when the country was in the throes of the global financial turmoil as the Middle East crisis festering since late February pushed up global oil prices, adding to broader economic concerns.

Exchange-rate levels, supplementary budget

Shin said authorities would continue to closely monitor foreign exchange markets, citing Middle East tensions and higher global oil prices as key risk factors. He also expressed support for accommodative policies, including a supplementary budget: "Perhaps accommodative policy is necessary because the Middle East situation adds to economic difficulties," he said. He noted that inflationary effects of the proposed supplementary budget would be small at its current size and design.

The administration is working to craft a 25-trillion-won supplementary budget to shield the nation's economy from persistent geopolitical shocks. The supplementary budget's size is not yet fully determined and may be adjusted to reflect changing needs.

South Korea's foreign reserves are ample, its fundamentals strong. Shin said the country's strong external fundamentals, and its capital inflows linked to its inclusion in the World Government Bond Index (WGBI), could help ease the pressure on the exchange rate once the Middle Eastern tensions ease.

Coverage and source basis

The account is based on two reports from Yonhap News Agency, which quoted Shin Hyun-sung's written responses and his comments on the current foreign exchange situation and government economic measures. The initial facts come from two separate reports from the same outlet.