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S. Korea to buy foreign bonds via repo deals for liquidity supply

All News 16:00 September 28, 2020

SEOUL, Sept. 28 (Yonhap) -- South Korea will buy foreign currency-denominated bonds via repurchase agreements from local banks when needed in a bid to pump dollar liquidity into the financial system, the central bank said Monday.

The Bank of Korea (BOK) and the finance ministry said they have drawn up a system to purchase foreign currency-denominated bonds held by local banks, such as U.S. government bonds, via repo deals.

Under the scheme to be implemented Tuesday, the BOK and the ministry will tap the country's foreign reserves.

"The system will help prevent a dollar funding squeeze by local banks from fanning systemic risks to the FX market," the BOK said in a joint statement.

The central bank said the scheme will be operated timely when authorities see the need to activate it after assessing supply and demand of dollar liquidity.

The BOK usually buys financial institutions' bond holdings or sells its own bond holdings to them via repurchase agreements, which require the institutions to repurchase or resell them at a later date.

The repurchase agreement is the central bank's main method of releasing liquidity into the market in a credit crunch and siphoning off excess liquidity.

The BOK supplied dollar liquidity to local banks this year by using the US$60 billion currency swap line with the United States.

South Korea's FX reserves reached a record high of $418.95 billion as of end-August.

This file photo shows a Hana Bank official in Seoul inspecting U.S. banknotes before their release into the local financial market. (Yonhap)

This file photo shows a Hana Bank official in Seoul inspecting U.S. banknotes before their release into the local financial market. (Yonhap)

sooyeon@yna.co.kr
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