Korea makes yet another stab at breaking free of the bad marriage known as Bretton Woods II.
South Korea's central bank will not intervene any further in foreign exchange markets, the governor of the Bank of Korea said on Wednesday in comments likely to unsettle financial markets.The last time the Koreans tried to leave the dollar, in February 2005, the won shot up over 1.2% in a single day and the country came crawling back home almost immediately. It was all over before it started.
�I believe that we now have sufficient reserves to secure our sovereign credibility, so I do not anticipate increasing the amount of foreign reserves further,� Park Seung told the Financial Times. South Korea's foreign currency reserves stand at $206bn the fourth largest in the world.
Mr Park said: �We now need to take more consideration of profitability, and I think we're at a stage where we need to manage our reserves in a more useful way.�
Although he made no explicit comment on the won, Mr Park's remarks imply that South Korea is now unwilling to undertake the intervention required to stem its currency's rise.
There's already been plenty of currency pain to go around for Korea this year. Over the last twelve months the won has risen 17% against the dollar -- and thus against the renminbi as well. Letting the market take over the won could mean +17% is a fond memory.
Do the Koreans really mean business this time? Can they stand the pain for more than one day this time around?