Bank of Korea Extends Foreign Currency Reserve Remuneration for Six Months to Address High Exchange Rate

Aimed at Improving Foreign Exchange Supply and Demand

The payment of interest on excess foreign currency reserve deposits (foreign currency reserve remuneration) that financial institutions deposit with the Bank of Korea will be extended for another six months.

On June 11, the Monetary Policy Board of the Bank of Korea announced its decision to extend the foreign currency reserve remuneration for an additional six months. Foreign currency reserve deposits refer to foreign currency funds deposited with the Bank of Korea by financial institutions in excess of the statutory reserve requirements. The extension of the remuneration period is intended to incentivize foreign currency deposits and stabilize the supply and demand of foreign currency funds.

Earlier this year, the Bank of Korea initiated the foreign currency reserve remuneration for the first time ever to improve the foreign exchange supply and demand situation. However, as the KRW-USD exchange rate has consistently exceeded 1,500 won since last month, this move is interpreted as an extraordinary measure. In fact, starting the previous day, the government, the Bank of Korea, and financial supervisory authorities began a joint foreign exchange inspection targeting major foreign exchange banks to stabilize the foreign exchange market.

A Bank of Korea official explained, "The interest rate applied to excess reserve deposits will remain the same as the current rate, which is based on the target range of the Federal Reserve (Fed) policy rate."

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