[세종=이데일리 김은비 기자] An analysis showed that the won-denominated source of the Foreign Exchange Balancing Fund, which the government is preparing to respond to exchange rate volatility, will decline by a net of about 59 trillion won over the two years of last year and this year. This is because foreign exchange funds have been used to respond to the ‘tax revenue puncture’ for two consecutive years, and the issuance of won-denominated foreign exchange equalization bonds (foreign exchange stabilization bonds) is also at risk of being canceled.
There are concerns that the government’s ability to respond may decrease in a situation where exchange rate volatility may increase due to changes in external conditions.
According to the ‘Analysis of Factors of Increase or Decrease in Foreign Exchange Fund’s Won Resources’ by the National Assembly Budget Office (Office of Budget) on the 30th, as of the 2023 financial year, the Foreign Exchange Fund’s won resources decreased by a net KRW 14.4 trillion. This is because in order to respond to large-scale tax revenue losses last year, 14.4 trillion won of surplus funds from foreign exchange funds were early repaid to the principal of the Public Fund Management Fund (Confucius Fund).
The Foreign Exchange Balancing Fund is a fund established to stabilize the foreign exchange market by reducing exchange rate volatility and providing foreign currency liquidity. For example, if downward pressure on the won-dollar exchange rate intensifies, stabilization measures are taken by supplying won to the foreign exchange market and purchasing foreign currencies. At this time, won currency resources are received from the Confucius Fund, and foreign currency resources are secured through the issuance of foreign currency-denominated foreign exchange bonds.
However, there is a high possibility that the size of the fund’s won financial resources will be greatly reduced as the foreign exchange fund early repaid the principal amount to Confucius Fund in response to a tax revenue collapse last year and this year. The Ministry of Strategy and Finance has allocated 56.6 trillion won in deposits from the Confucius Fund this year and 94.6 trillion won in repayments. Because the scale of repayment is large compared to the deposit, the fund’s won-denominated resources are reduced by a net 38 trillion won.
Initially, an attempt was made to partially offset this by issuing foreign currency bonds, but this is highly likely to fail. The Ministry of Strategy and Finance announced that it will issue KRW 18 trillion worth of foreign exchange bonds for the first time in 21 years to raise won-denominated finance. However, the plan is facing a setback as the Foreign Exchange Transactions Act, which requires the Bank of Korea to carry out issuance and electronic registration of won-denominated foreign exchange bonds, is stuck in the National Assembly. With only two months left in the year, there is a high possibility that it will actually be cancelled.
In addition, as last year, the government has announced that it will use 4 to 6 trillion won in foreign investment funds to respond to the tax revenue puncture. In this case, this year’s won financial resources could decrease by up to 44 trillion won.
[이데일리 김일환 기자]
However, the Ministry of Strategy and Finance maintains that the foreign exchange fund’s current financial resources are approximately 270 trillion won, which is sufficient to respond to exchange rate volatility. Deputy Prime Minister and Minister of Strategy and Finance Choi Sang-mok emphasized at the National Assembly’s Planning and Finance Committee audit on the 28th, “I think the total financial resources of the Foreign Review Fund exceed 270 trillion won, so we can sufficiently respond.” However, the ratio of won, dollars, and other foreign currencies in the 270 trillion won is not disclosed.
Regarding this, the Ministry of Finance said, “Considering the U.S. Federal Reserve’s policy rate cut policy and geopolitical risks in 2025, volatility in the financial market is expected to continue,” adding, “There is a need to check the fund’s ability to respond to foreign exchange market volatility.” “There is,” he emphasized.
Eunbi Kim ([email protected])
