South Korea unveils currency controls

South Korea's finance ministry yesterday announced tightened regulations on foreign exchange transactions to stabilise its volatile finances.

The new measures, which take effect from July, are the latest of Seoul's efforts to regulate foreign capital flows and the fluctuating won.

The ministry said in a statement it would limit South Korean financial institutions' forward currency positions to 50 per cent of their equity capital and that of foreign banks operating here to 250 per cent.

Banks in South Korea, Asia's fourth largest economy, can now take almost limitless positions in the forward market if they take offsetting positions in spot, according to the ministry. Volatile forwards, or contracts where traders can buy or sell currencies at a future date, are often blamed for destabilising the market. The ministry said forward positions of the foreign banks in South Korea averaged around 300 per cent – higher than the new ceiling – as on April 30.

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