Brad Setser

Follow the Money

Cross border flows, with a bit of macroeconomics

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Won Appreciates, South Korea Intervenes

by Brad Setser
September 28, 2016


South Korea’s tendency to intervene to limit the won’s appreciation is well known.

When the won appreciated toward 1100 (won to the dollar) last week, it wasn’t that hard to predict that reports of Korean intervention would soon follow.

Last Thursday Reuters wrote:

“The South Korean currency, emerging Asia’s best performer this year, pared some gains as foreign exchange authorities were suspected of intervening to stem further appreciation, traders said. The authorities were spotted around 1,101, they added. ”

The won did appreciate to 1095 or so Tuesday, when the Mexican peso rallied, and has subsequently hovered around that level. It is now firmly in the range that generated intervention in August.


The South Koreans are the current masters of competitive non-appreciation. I suspect the credibility of Korea’s intervention threat helps limit the scale of their actual intervention.

And with South Korea’s government pension fund now building up foreign assets at a rapid clip, the amount that the central bank needs to actually buy in the market has been structurally reduced. Especially if the National Pension Service plays with its foreign currency hedge ratio to help the Bank of Korea out a bit (See this Bloomberg article; a “lower hedge ratio will boost demand for the dollar in the spot market” per Jeon Seung Ji of Samsung Futures).

Foreign exchange intervention to limit appreciation isn’t as prevalent it once was. More big central banks are selling than are buying. But it also hasn’t entirely gone away.

Korea has plenty of fiscal space. It could move toward a better equilibrium, one with more internal demand, less intervention and less dependence on exports.


  • Posted by David O'Rear

    The Korean Won tracks the Japanese Yen more closely than the US dollar or renminbi. And, since mid-year it hasn’t budged from the ₩900-930:¥100 range.

  • Posted by Brad Setser

    three comments

    a) one reason why the KRW hasn’t budged v the JPY since mid year is that the Koreans intervened to keep it from budging!

    b) think there was a time not so long ago when yen was @ 100 and KRW was @ 1000

    c) KRW didn’t track the yen much in the pre-global crisis period (won strong, yen weak), or in the “weak won/ strong yen” 09 to 12 period (in part because of Korean intervention)