, Korea

South Korea mulls normalizing eased rules on banks’ FX derivatives: report

The country relaxed rules in March amidst a severe dollar crunch.

South Korea is considering normalizing eased rules on banks’ foreign exchange derivatives, as FX liquidity conditions have improved amidst the global economic recovery, reports Yonhap News Agency.

The country relaxed rules in March after the country's FX and swap markets suffered a severe dollar crunch.

Last year, the country raised the cap on the holding of local banks' FX forward positions to 50% of their equity capital from the previous 40%. For local branches of foreign banks, the cap was lifted to 250% from 200%.

"Market volatility could increase amid global concerns about rising inflation and major economies' moves toward normalizing their accommodative monetary policy," Vice First Finance Minister Lee Eog-weon said, after a pan-government meeting on FX soundness.

"In this sense, the government plans to consider normalizing some of its FX-related rules that were eased (during the pandemic-caused market routs), depending on economic situations and FX liquidity conditions," he added.

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