As the United States' reciprocal tariff policy rapidly changes, the volatility of exchange rates has increased, leading to a surge in won-dollar transaction volumes. Early last month, interbank transaction volumes surpassed $20 billion for the first time, setting a new record. The overall transaction scale, including transactions between banks and clients, is also likely to reach an all-time high.
According to Seoul Foreign Exchange Brokerage and Korea Money Brokerage on the 28th, on the 7th of last month, when the value of the won increased alongside the strength of the Taiwanese dollar, the won-dollar transaction volume recorded $20.145 billion, marking the highest since relevant statistics began to be compiled. Seoul Foreign Exchange Brokerage and Korea Money Brokerage are licensed for foreign exchange spot brokerage and were established in 2000 and 1996, respectively. Financial institutions conduct foreign exchange transactions through these two organizations.
The foreign exchange transaction volume through the two institutions has consistently exceeded $10 billion, maintaining a high level. This year, there have been only 9 days (Jan. 2, 6, 8, 9, 10; Feb. 6, 14; Mar. 7, 28) when the daily won-dollar transaction volume did not exceed $10 billion. On the 10th of this month, when expectations for amendments to the Commercial Act and resolution of the Korea discount increased, it surged to $19.8 billion, approaching $20 billion again.
A Ministry of Finance official noted, "Recent interbank transactions have been recorded at a maximum of $15 billion," adding, "Last year, it was around $10 to $12 billion, but this year's transaction volume has increased significantly."
The increase in foreign exchange transaction volume is interpreted as an indicator of the market's "stamina," beyond a simple numerical increase. The more active the transactions, the higher the liquidity of the foreign exchange market, which helps establish exchange rates without distortion. When an environment is created in which investors and corporations can buy and sell foreign exchange at their desired time, the market's efficiency and transparency also improve.
The biggest reason for the increase in won-dollar transaction volume is attributed to the extension of trading hours in the won-dollar foreign exchange market from 3:30 p.m. to 2 a.m. the following day, which began on July 1 last year. In this regard, Deputy Governor Yu Sang-dae noted during a press briefing held at the Bank of Korea’s annex in Jung-gu, Seoul, on the 24th, "The infrastructure has been operating stably over the past year since the opening of the foreign exchange market, leading to a 15 to 20% increase in transaction volume."
Recently, as uncertainties both domestically and internationally have increased, the volatility of exchange rates has also played a role. When exchange rates move rapidly, the transaction volume of dollars by investors seeking to realize profits increases. Park Soo-yeon, a researcher at MERITZ Securities, said, "In early May, when the Taiwanese dollar strengthened due to the U.S.-Taiwan exchange rate negotiations, the value of the won also rose accordingly," adding, "During this time, the demand for dollar buying at low prices surged, which likely increased transaction volume."
According to the Bank of Korea, the daily fluctuation of the won-dollar exchange rate compared to the previous day reached 9.7 won in April this year, the largest since November 2022 (12.3 won). Although it fell to 7.2 won last month, this was still larger than the fluctuation recorded in December of last year (5.3 won) when a state of emergency was declared. As volatility increased, the won-dollar exchange rate, which surpassed 1,450 won at the end of last year, has fallen to the 1,360 won range within six months.
As interbank transactions reached an all-time high, it is expected that the overall won-dollar transaction volume, including transactions between banks and clients, will also increase. According to the Bank of Korea, last year, the average daily spot foreign exchange transactions (including interbank and client transactions) of foreign exchange banks recorded $19.46 billion. Quarterly, it reached a record high of $20.51 billion in the third quarter and maintained a high level with $20.35 billion in the first quarter of this year.
With the inclusion of Korea's government bonds in the World Government Bond Index (WGBI) in April next year, an increase in won-dollar transaction volume is expected. Once included in the WGBI, there is a high possibility of inflows of passive funds amounting to $50 billion to $60 billion. Deputy Governor Yu Sang-dae stated, "The inclusion in the WGBI will increase demand for won-denominated assets and gradually expand foreign exchange transaction volumes."