The Financial Supervisory Service announced on July 28 that it is considering using financial companies’ foreign currency bonds for emergency U.S. dollar procurement. According to experts, this is to prevent foreign capital outflow after the U.S. interest rate change on July 27.
According to the organization, domestic banks may borrow foreign government bonds from insurers and then procure funds and supply foreign currency liquidity in South Korea through overseas RP sale using the bonds. “Insurers can get fees by lending the bonds and banks can lend the foreign currency funds from the RP sale at relatively higher rates,” it explained, adding, “This market function-based method is expected to be another FX market stabilization tool.”
At present, South Korean financial companies’ U.S. government and international organization bonds add up to US$34.46 billion. Last year, South Korean banks’ financing based on foreign currency bond issuance and non-short-term borrowings was US$26.62 billion. The difference implies that the method can be helpful enough for FX market stabilization.
