BOK to Supply $4 Bil. Swap Fund to Banks
By Kim Jae-kyoung
Staff Reporter
The central bank has decided to supply more liquidity to dollar-strapped financial institutions by receiving $4 billion from the U.S. Federal Reserve through a currency swap agreement forged Oct. 30.
The Bank of Korea (BOK) said Thursday that it will conduct the competitive auctions on Dec. 2 to provide U.S. dollar funding, worth $4 billion, to local financial institutions, including banks. The loans will have a maximum duration of 88 days.
The move came amid growing concerns that the nation's foreign exchange reserves may have fallen below the psychologically-important $200 billion mark as a result of a dollar supply to stabilize the local currency market. The reserves were around $260 billion earlier this year but fell to $240 billion in September and $212 billion in October.
Despite a series of market-stabilization measures, the local currency has lost nearly 200 won against the dollar since the end of October, as foreign investors continue to pull money out of the local stock market due to the global financial turmoil.
Banks using the swap fund will have to provide initial collateral with won collateral amounting to 110 percent of the fund supplied. Eligible collateral is restricted to won-denominated treasury bonds, government-guaranteed bonds, and monetary stabilization bonds.
The fund to be provided is part of a $30 billion won-dollar swap deal signed between the BOK and the Federal Reserve. The agreement will be effective until April 30 of next year.
However, despite the announcement of the swap fund supply, the local currency closed at 1,476 won per dollar Thursday, only up 2.1 won from the previous close
``The dollar supply from the Fed will help stabilize the currency market in the long term, but market jitters will linger for a while, due to a global credit crunch and capital outflow of foreign funds,'' JP Morgan Korea chief economist Lim Ji-won told The Korea Times.
``I think that the won will remain weak for a while but will rebound and gain ground against the dollar into the end of next year,'' she added, forecasting the won-dollar rate to fall to the 1,200 won range in the latter half of 2009.