South Korea Implements Further Measures to Address FX Liquidity Issues

South Korea has taken another step to try and counteract Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term issues for the United States dollar (USD), with the Ministry of Economy and Finance announcing that it plans to loosen the foreign exchange (Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term) liquidity coverage ratio (LCR) for banks.

According to a report from Reuters, the LCR for banks will be relaxed for three months, with the aim to motivate them to supply more dollars into South Korea’s local markets, as COVID-19 continues to create liquidity issues.

In particular, the vice minister of the Ministry of Economy and Finance Kim Yong-beom outlined that the FX LCR will be loosened to 70 percent, down from the current 80 percent. This will be in place until May-end, the news outlet reported.

The measures announced today require banks to hold less of easy-to-sell foreign assets. The vice minister also highlighted that the country’s government expects forex reserves to be temporarily reduced, as some will be used to ease liquidity shortages, Reuters said.

South Korea continues to address liquidity issues

Earlier this month, the ministry, alongside the Bank of Korea (BOK), announced they would be implementing another measure, which also aims to address the USD shorting in Korea’s local markets.

As Finance Magnates reported, the two authorities said that the cap on foreign currency forward positions that local banks were allowed to hold would be increased to 50 percent of their equity capital from the 19th of March, 2020.

Prior, banks were allowed to hold 40 percent. For foreign banks, the cap was also raised from 200 percent up to 250 percent.

At the time, the South Korean Finance Ministry said that by raising the ceiling, it is expected to help address the mismatches in dollar liquidity in the country’s derivatives markets, as traders increasingly flock to the USD, which is seen as a safe haven currency amid the deepening economic impact of the coronavirus pandemic.