BOK to adopt open bidding for won-dollar swaps

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SEOUL, Oct. 17 (Yonhap) -- South Korea's central bank said Friday it will
introduce an open bidding system for won-dollar swaps in an effort to supply more
dollar liquidity to the local market.
The move comes as domestic banks face a severe dollar shortage, hit by the global
credit crunch. Currently, the Bank of Korea (BOK) signs swap deals with primary
banks, which in turn trade with other local lenders.
"This new trading system is expected to help ease recent market jitters in the
foreign currency market hit by the global financial turbulence," Ahn Byung-chan,
head of the central bank's international bureau, told reporters.
The central bank will hold auctions on a weekly basis starting on Tuesday, it
added.
"For the first bidding, about US$2 to 3 billion will be auctioned and the size of
the dollar supply will be increased gradually, but it depends on the global
market situation," Ahn added.
South Korea's foreign exchange market has been suffering from a dollar shortage
as banks and companies are scrambling to hoard the safer greenback on concerns of
a financial crisis sparked by the collapse of investment bank Lehman Brothers
Holdings Inc. A dollar shortage has pushed down the value of the won and local
stocks over the past few weeks.
"Local banks are having difficulties in borrowing overseas, but it is not true
that they cannot raise funds at all," Ahn said. "They have already secured funds
needed until the end of October and many of them have raised money needed until
end-November."
The won has dropped roughly 30 percent against the U.S. dollar so far this year
as overseas investors have continued to pull money out of local stocks, causing
Korean financial institutions to suffer a dollar shortage.
The central bank has pledged to continue providing U.S. dollars to the local swap
market until it stabilizes.
The local currency was trading at 1,355.45 won to the dollar as of 11:00 a.m., up
17.55 won from the previous session's close.
South Korea's foreign exchange reserves, the world's sixth-largest, reached
US$239.7 billion as of the end of September, down $3.53 billion from a month
earlier and marking a decline for the sixth straight month.