Seoul to disclose foreign exchange market interventions

/ Yonhap

By Yoon Ja-young

The government will disclose its interventions in the foreign exchange market every quarter to enhance the transparency of its foreign exchange policies. The first disclosure will be made next March.

“The disclosure will help our currency market mature and enhance our credit overseas,” Finance Minister Kim Dong-yeon said at an economy-related ministers' meeting, Thursday.

“We have been sticking to the principle that the foreign exchange rate should be determined by the market and that there will be smoothing operations only when there are extreme one-sided movements. Nothing has changed regarding this principle.”

Korea has been engaged in smoothing operations like other countries, but it has not revealed such interventions amid fears foreign currency speculators may abuse such information. This practice led to some “misunderstandings about policies,” according to the finance ministry. The United States, for instance, has been suspecting Korea of pulling down the valuation of the Korean won by intervening in the market, making Korean products cheaper in the U.S. while U.S. products in Korea became relatively expensive. The International Monetary Fund (IMF) also has been recommending Korea disclose its interventions to enhance transparency.

Such pressure prompted the government to disclose it for the first time in the history of its foreign exchange market, which opened in 1962.

It will be revealed twice a year for one year and then switch to quarterly disclosures, within three months after a reporting period. Hence, interventions in the latter half of this year will be revealed next March. Interventions in the first half of next year will be posted in September. Then it will switch to quarterly disclosures, with the interventions in the third quarter of next year revealed in December.

It will reveal the net amount of U.S. dollars used for buying and selling, and the information will be posted on the Bank of Korea website.

Seoul used an agreement by TPP members as a guideline. The 12 countries that joined the TPP, including the United States, Japan, Australia and Singapore, had pledged disclosures no later than three months after the end of each quarter.

Korea is the only OECD member country not revealing interventions. Most G-20 countries have also been disclosing interventions, except for China, Indonesia, South Africa, Saudi Arabia, Russia and Korea.

Analysts expect the disclosures won't have any immediate impact on the foreign exchange market as they won't be very frequent. Switzerland reveals interventions once a year while no country does twice a year. The United States discloses its interventions every quarter.

Japan, the U.K., Canada, New Zealand, India, Guatemala and Brazil reveal interventions every month. Argentina, Chile and Peru have adopted weekly disclosures while Hong Kong, Turkey and Mexico do it on a daily basis.

Analysts agree the disclosures are likely to make the government more cautious in interventions.

“It will have an extensive impact, as the government has officially decreased room for intervention," said Lee Mi-seon, an analyst at Hana Financial Investment.