The Bank of Korea diagnosed that the won's depreciation has been larger than major currencies due to foreign stock selling, while external borrowing conditions and foreign exchange liquidity remain sound, according to a report submitted to the National Assembly's Strategy and Finance Committee on the 9th. The dollar-won exchange rate rose to the mid-1,500 won range as Middle East geopolitical risks increased, the dollar strengthened, and foreigners conducted large-scale net selling of domestic stocks. The central bank noted that foreign stock net selling reached 40.4 trillion won in March, 48.5 trillion won in May, and 57.2 trillion won in June, with the won's depreciation exceeding that of major currencies as risk-aversion sentiment strengthened.
Foreign Stock Selling Reaches 57.2 Trillion Won in June
The Bank of Korea reported that foreign investors' net selling of domestic stocks totaled 40.4 trillion won in March, 48.5 trillion won in May, and 57.2 trillion won in June. The central bank assessed that the won's depreciation was larger than that of major currencies as foreign stock net selling added to the dollar-won rate's rise alongside major currencies amid strengthened risk-aversion sentiment due to Middle East regional risks. The dollar-won rate accelerated its rise after May as expectations for Federal Reserve interest rate hikes were added to the mix.
BOK Reports Stable External Borrowing Conditions
The Bank of Korea assessed that external borrowing conditions and domestic foreign exchange liquidity situations are being maintained at sound levels. Foreign exchange stabilization fund bond credit default swap premiums showed stable flows at 37.3bp at the end of 2024, 21.9bp at the end of 2025, and 22.3bp at the end of June this year. The arbitrage incentive (3-month), which shows foreign currency funding market conditions, declined from 42bp in the first half of last year to 24bp in the second half and 0bp in the first half of this year, falling below the 2020-2025 average of 44bp.
BOK Implements Smoothing Operations and FX Swaps
The Bank of Korea emphasized that it is implementing smoothing operations to mitigate excessive volatility in the foreign exchange market, conducting foreign exchange swaps with the National Pension Service, and extending interest payments on excess foreign currency reserves. The central bank stated it will secure funds for US investment by procuring necessary funds within the range of foreign asset management returns, thereby promoting foreign exchange market stability and maintaining appropriate levels of foreign exchange reserves. The Bank of Korea and the government plan to entrust funds to the Korea-US Strategic Investment Corporation within the range not exceeding the operating returns of foreign currency assets.
FAQ
What caused the won to depreciate to the mid-1,500 won range?
The dollar-won exchange rate rose to the mid-1,500 won range due to increased Middle East geopolitical risks, dollar strength, and large-scale foreign net selling of domestic stocks. Foreign stock net selling reached 40.4 trillion won in March, 48.5 trillion won in May, and 57.2 trillion won in June.
How did the Bank of Korea assess external borrowing conditions?
The Bank of Korea assessed that external borrowing conditions and domestic foreign exchange liquidity situations are being maintained at sound levels. Foreign exchange stabilization fund bond CDS premiums showed stable flows at 37.3bp at the end of 2024, 21.9bp at the end of 2025, and 22.3bp at the end of June this year.
