[Editorial] Beyond Temporary Fixes: A Comprehensive Plan for Foreign Currency Supply Is Needed

The US Dollar–South Korean Won exchange rate is on the verge of reaching 1,500 won. As the rate continues to rise, the government announced on the 18th a flexible adjustment plan for the foreign exchange soundness system. The latest measures include easing foreign currency liquidity regulations for financial institutions, raising the forward position limit for foreign bank branches, permitting export companies to take out foreign currency loans for won-denominated purposes, and facilitating direct trading by foreigners in the domestic stock market through integrated accounts. These steps are designed to expand the channels for foreign currency inflows.
The rise in the exchange rate can no longer be ignored. If it surpasses 1,500 won, the situation could escalate into a crisis. The government's latest measures reflect this sense of urgency. However, there are several points that need to be addressed regarding the government's stabilization efforts.
First, the response comes more than three months after the exchange rate began its sharp ascent. As a result, market anxiety remains high despite the new measures. Until now, the government has focused on curbing dollar outflows, seemingly expecting the foreign exchange market to gradually stabilize while monitoring the situation. Only after previous measures proved ineffective did the government introduce additional steps. One wonders what might have happened if proactive inflow policies had been considered when signs of a rapid exchange rate increase first appeared.
Second, it remains to be seen whether these new inflow measures will actually be effective. Supervisory actions such as suspending foreign currency liquidity stress tests for financial institutions until the end of June next year and raising the forward position limit for foreign bank branches from 75% to 200% may not immediately bring in dollars. Given the current global financial instability, regulatory easing alone is unlikely to shift market sentiment.
Third and most importantly, foreign currency stabilization measures must be implemented organically. The government should address the current situation with comprehensive and systematic policies that both minimize outflows and maximize inflows. If the foreign exchange market remains this unstable, the seriousness of the situation must be recognized and addressed with bold, all-encompassing solutions. It is questionable whether repeated patchwork responses will yield the desired results. Such approaches cannot resolve the structural imbalance in foreign currency supply and demand.
Exchange rate instability is not merely a financial market issue. It triggers domestic inflation and further deepens the downturn in the domestic economy. The Bank of Korea (BOK) has warned that if the exchange rate remains around 1,470 won, the inflation rate could rise to the low-to-mid 2% range. The impact is not limited to domestic stagnation. A rising exchange rate increases the cost of imported raw materials, which in turn raises production costs for companies and inevitably undermines the international competitiveness of industries.
To stabilize the foreign exchange market, the government must now pursue transparent and comprehensive exchange rate stabilization measures. This requires strengthening communication with the market to enhance policy credibility. It is unrealistic to expect that short-term measures alone will stabilize the market. Delayed responses and makeshift solutions are the root causes of eroding market trust.