Overnight trading lets offshore funds hedge the won in Seoul as the dollar's reserve share slips 8 points
Korea is trying to bring offshore won hedging onshore after the dollar's share of central bank reserves fell to 56% last year from 64% in 2015. The test now is whether overnight liquidity forms and foreign holders keep the won they receive.
The Investor · Invest desk
What happened
- A senior government official said the memory chip bottleneck mattered above Korea's World Government Bond Index entry and the move to round-the-clock trading in making the country hard to ignore.
- Offshore investors used to hedge in the NDF market and settle in dollars with no won changing hands; they can now trade deliverable forwards and FX swaps in Seoul overnight without restrictions.
- Central banks are moving into other currencies and assets, with China and Russia, both at odds with the United States, leading the shift and chronic US deficits adding to it.
- Authorities are building an offshore won payment network and reviewing an incentive for converting NDF trades into deliverable forward transactions.
- Bank of Korea Governor Shin Hyun-song has described overnight offshore NDF trading that significantly moves the spot rate as a case of the tail wagging the dog.
Why it matters
- constraint The 8 points the dollar lost went to unspecified other currencies and assets, so the reserve shift supplies the won with no buyers by itself.
- decision Seoul must decide whether an incentive is what moves offshore funds from NDF to deliverable forwards; until it adopts one, the overnight market depends on funds choosing it unprompted.
- contradiction The article calls rising overnight FX derivatives trading a positive signal for the won but does not state a volume, and the incentive to convert NDF trades is still under review.
We think Korea's reforms have arrived ahead of the demand they are meant to serve. The access measures date from this year [2]. The dollar lost 8 points of reserve share between 2015 and last year, or rather one-eighth of the share it started with, since 8 is one-eighth of 64 [10], and it still holds the majority [1]. A drift that slow gives a new venue time to build depth, but it gives the other currencies and assets that central banks are turning to [11] the same time.
The unnamed official quoted by the Seoul Economic Daily gave the optimistic case in one line: "When a country's power grows, the standing of its currency changes as well" [3]. The access is already built [4], so the economists put the test later in the chain. Kim Han-soo, a senior research fellow at the Korea Capital Market Institute, said the focus should be on "whether won liquidity of sufficient size and depth actually forms" [6]. Han Jae-joon, a professor of finance and management, said that over the medium to long term what matters is "creating incentives for foreign companies and financial institutions to go beyond using the won as a means of settlement and to hold and reuse the won they receive" [7].
NDF volume could move onshore and the next-day swings shrink, as officials believe they will [13], while the won is still used only to settle trades; the paper's unnamed experts caution that pulling NDF demand onshore does not complete internationalization [8]. Or the conversion incentive could stay under review [5], offshore funds could keep hedging through dollar-settled NDFs [4], and Seoul could run an overnight market few people use. Or reserve managers leaving the dollar could choose other currencies and assets [11], and the won would not be among them.
Resources so far go to the overnight trading book: an offshore won payment network and a possible incentive for converting NDF trades [5]. Some argue Korea needs a wider "currency plan" [9], and the article reports nothing beyond that argument.
We would be wrong if overnight onshore forwards and swaps draw deep volume before any incentive is paid, because that would show demand was waiting only for a venue. The authorities have set a narrower test: they believe a decline in NDF volume will likely reduce abnormal swings in the exchange rate the following day [13].
What to watch
- Whether authorities adopt the NDF-to-deliverable-forward conversion incentive, and what it pays.
- Whether the comprehensive currency plan some argue for becomes an official proposal.
- The next New York Fed reading of the dollar's reserve share, to see if it keeps falling below 56%.
Clarity's read
What the record supports and how the coverage leans. The claims behind it follow.
Reality
- Evidence40
- Adoption
- Insufficient
- Hype gap+35
- Incentives
- Insufficient
- Confidence45
Claim ledger
Ranked by verification strength, evidence, and original report placement.
- [1]
The dollar's share of global central bank foreign exchange reserves fell to 56% last year from 64% in 2015, an 8 percentage point drop, according to the Federal Reserve Bank of New York.
- [2]
A senior government official said measures to improve access this year included entry into the World Government Bond Index and the move to round-the-clock foreign exchange trading, but above all the memory chip bottleneck has made Korea a country that is hard to ignore.
- [3]
"When a country's power grows, the standing of its currency changes as well," the senior government official said.
- [4]
Offshore investors previously hedged in the non-deliverable forward (NDF) market, settling gains and losses in dollars with no won changing hands, because the Seoul market was closed overnight; with round-the-clock trading they can now carry out deliverable forward and FX swap transactions in the domestic market overnight without restrictions.
- [5]
Foreign exchange authorities are building an offshore won payment network following the move to 24-hour trading and are reviewing a plan to offer incentives when NDF trades are converted to deliverable forward transactions.
- [6]
"Going forward, the focus of won internationalization should be on whether won liquidity of sufficient size and depth actually forms, rather than on opening the system or building infrastructure in itself," said Kim Han-soo, a senior research fellow at the Korea Capital Market Institute.
- [7]
"Over the medium to long term, what matters is creating incentives for foreign companies and financial institutions to go beyond using the won as a means of settlement and to hold and reuse the won they receive," said Han Jae-joon, a professor of finance and management.
- [8]
Experts note that simply pulling NDF demand into the onshore market does not complete the internationalization of the won.
- [9]
With geopolitical conflict intensifying, some argue Korea needs a comprehensive "currency plan" to build the won's international influence.
- [10]
The dollar's 8 percentage point loss equals one-eighth (12.5%) of its 2015 reserve share.
- [11]
Central banks are turning to other currencies and assets instead of the dollar, with China and Russia, both at odds with the United States, leading the shift; chronic U.S. fiscal deficits are another factor.
- [12]
Bank of Korea Governor Shin Hyun-song has described the way overnight offshore NDF trading significantly moves the spot rate as a case of the tail wagging the dog.
- [13]
Foreign exchange authorities believe that a decline in NDF trading volume will likely reduce the abnormal swings in the exchange rate the following day.
- [14]
The article says the rise in overnight foreign exchange derivatives trading can be read as a positive signal for internationalizing the won.
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Sources
1 independent publisher whose own reporting we read for this story.
- en.sedaily.comCentral Banks Trim Dollars, Opening Door for Won's Global Push
1 article · October 12, 2026
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Entities
- World Government Bond IndexFollow
- Bank of KoreaFollow
- Korea Capital Market InstituteFollow
- Shin Hyun-songFollow
- Federal Reserve Bank of New YorkFollow