How are Banks Working with Authorities to Address Currency Weakness in South Korea?
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Synopsis
As South Korea's currency faces challenges, major banks are uniting with government authorities to stabilize the situation. With incentives for dollar exchanges and lower interest rates on foreign deposits, they aim to support the won's value. Discover how these measures could reshape the financial landscape.
Key Takeaways
- Collaboration between banks and government is essential to stabilize currency.
- Incentives for dollar exchanges aim to bolster the won.
- Interest rates on foreign currency deposits are being lowered.
- Authorities are actively monitoring foreign currency marketing practices.
- Surge in dollar-denominated insurance products is raising concerns.
Seoul, Jan 18 (NationPress) In a concerted effort, South Korea's leading commercial banks are collaborating with government foreign exchange authorities to tackle the recent depreciation of the local currency. They are providing incentives for customers to exchange U.S. dollars while also reducing interest rates on foreign-currency deposits, as stated by officials on Sunday.
The wons value has been fluctuating around the significant 1,450 won mark against the U.S. dollar, despite the authorities' verbal interventions and policy adjustments. This situation is exacerbated by the overall strength of the dollar, geopolitical uncertainties, and extensive foreign investment by local investors.
As of Friday, the currency was valued at 1,473.6 won per dollar, continuing its downward trend after a brief recovery that interrupted a ten-day losing streak, according to Yonhap news agency.
Government authorities have urged banks to proactively stabilize the foreign exchange market.
The Financial Supervisory Service (FSS) is scheduled to meet with major banks on Monday to encourage them to limit marketing that promotes the U.S. dollar and other foreign currency deposits, as per industry sources.
Last week, Bank of Korea (BOK) officials convened with local banks to discuss required reserves on foreign currency deposits and related interest rates. The central bank has introduced a temporary measure to offer interest on required reserves in foreign currency to enhance domestic dollar liquidity and bolster the won.
"We are conducting promotional initiatives for exporters and other clients who convert foreign currency into won and are contemplating various additional measures to bolster the government's exchange rate strategy," a representative from KB Kookmin Bank mentioned.
Woori Bank has lowered the interest rate on its foreign currency deposit offerings designed for international travelers to 0.1 percent from 1 percent, aiming to minimize the appeal of holding dollar deposits.
The discussions follow an earlier meeting this month between the finance ministry and FX marketing heads at prominent banks, where the ministry urged restrictions on aggressive marketing tactics, including exchange rate discounts on dollar transactions, according to sources.
Insurance companies are planning to evaluate the effectiveness of their regulations regarding the sale of foreign currency insurance products. This action follows FSS Governor Lee Chan-jin's directive for regulators to guide financial institutions to avoid excessive promotion of foreign currency-based deposits and insurance offerings.
Sales of dollar-denominated insurance products, which have premiums and payouts in U.S. dollars, have surged recently. Authorities have cautioned that speculative demand for these products is contributing to the won's decline.
"The sales of dollar-denominated insurance offerings have increased significantly, and related consumer grievances are being filed consistently," an FSS official commented. "We plan to assess the outcomes of insurers' internal reviews and will conduct inspections if necessary."
Point of View
The collaborative measures taken by South Korea's banks and government to address currency weakness reflect a proactive approach to safeguarding the economy. By implementing strategies to stabilize the won, they are demonstrating a commitment to financial stability and consumer confidence amidst challenging global circumstances.
NationPress
21/01/2026
Frequently Asked Questions
Why are South Korean banks lowering interest rates on foreign currency deposits?
South Korean banks are reducing interest rates on foreign currency deposits to discourage the holding of U.S. dollars and to support the stability of the local currency, the won.
What measures are being taken to stabilize the South Korean won?
Authorities are implementing incentives for customers to sell U.S. dollars, holding meetings with major banks, and reviewing interest rates on foreign currency deposits to stabilize the won.
How has the U.S. dollar's strength affected the South Korean currency?
The overall strength of the U.S. dollar, combined with geopolitical risks and significant foreign investment, has put pressure on the South Korean won, causing it to hover near critical levels.
