The won-dollar foreign exchange market shifts to a 24-hour trading system starting Saturday. Trading hours are being sharply expanded to run from 6 a.m. Monday to 6 a.m. Saturday, effectively enabling round-the-clock won trading except on weekends and January 1. Trading hours for currencies other than the U.S. dollar will remain unchanged. The measure was introduced to improve foreigners' access to the won, absorb non-deliverable forward (NDF) demand into the onshore market, and advance the foreign exchange market. Yet there are concerns that 24-hour trading could amplify market volatility at a time when the won-dollar exchange rate is hovering above the 1,550 level and threatening to reach 1,600. In particular, if liquidity is insufficient during overnight hours in the early stages, there is a high risk that the exchange rate could swing sharply in response to changes in global macroeconomic indicators or moves by speculative forces.
Wider exchange rate volatility can translate directly into cost burdens for exporters, importers, and investors. The won-dollar exchange rate has already surged recently on the possibility of U.S. rate hikes and foreign investors' exit from the domestic stock market. The exchange rate, which stood in the 1,300 range just a year ago, has remained in the 1,500 range for 34 consecutive trading days as of the 3rd of this month. The second-quarter average exchange rate was 1,501.64 won, the highest in 28 years and three months since the first quarter of 1998 (1,596.88 won). If volatility grows further under 24-hour foreign exchange trading amid such conditions, ordinary citizens and small and medium-sized enterprises already battered by the triple whammy of high prices, high exchange rates, and high interest rates could suffer a heavy blow.
Stabilizing the won-dollar exchange rate is now an urgent task. The government must preserve the benefits of opening the foreign exchange market around the clock while minimizing side effects. Special safeguards are required, particularly because small and medium-sized enterprises—unlike large corporations—may be exposed to risk defenseless, lacking the specialized personnel and currency-hedging tools needed to respond in real time to overnight exchange rate volatility. The foreign exchange authorities must build a tight 24-hour monitoring system to thoroughly block market-disrupting activity by speculative forces. Efforts to build thicker breakwaters for the foreign exchange market, such as a Korea-U.S. currency swap, must proceed in parallel. Ultimately, the potential growth rate must be raised through regulatory innovation and greater labor flexibility. Only then can the foreign exchange market become healthy enough to withstand any attack by speculative forces.
