The Bank of Korea pays interest on foreign currency deposits…Hana Bank, No. 1 in foreign currency assets, ‘maximum benefit’

Exchange rate stabilization expected through ‘foreign currency reserves’
The Bank of Korea pays interest on foreign currency deposits to commercial banks for the first time
Funds from financial institutions previously managed overseas are now more likely to return to the country.

The won-dollar exchange rate, which had been climbing and threatened to reach 1,500 won, now seems to be stabilizing in the 1,400 won range. This is largely due to the authorities’ quick response. The Bank of Korea’s temporary move to pay interest on excess foreign currency deposits held by commercial banks is playing a key role.

On December 30th, the won-dollar exchange rate closed at 1,429.8 won, a drop of 10.5 won from the previous day.The exchange rate has stopped its rapid climb and is trending downward, suggesting it’s entering a more stable period.

The Bank of Korea reports that the average monthly exchange rate rose consistently from June (1,366.95 won) to November (1,457.77 won). Experts believe the surge was driven by capital flowing out of Korea and into the booming U.S. stock market. As demand for dollars increased, the won weakened.

In order to counter this trend, the Bank of Korea introduced the interest payments on foreign currency deposits. This encourages financial institutions to bring funds previously managed overseas back into the country. It’s a way to increase the supply of dollars in the domestic market and ease pressure on the exchange rate.

Hana Bank, with the largest amount of foreign currency assets among commercial banks, is expected to benefit the most from this new system. The bank’s considerable holdings mean it will receive a larger share of the interest payments. Other banks with notable foreign currency assets, like woori Bank and shinhan Bank, will also see benefits, though likely to a lesser extent.

“The Bank of Korea’s decision is a timely measure to stabilize the exchange rate,” said a source in the banking sector. “It’s expected to have a positive impact on the overall financial market.”

However,some analysts caution that the effect may be temporary. They point to ongoing global economic uncertainties and the potential for further interest rate hikes in the U.S. as factors that could put renewed pressure on the won. The Bank of Korea will likely continue to monitor the situation closely and take additional steps if necessary.