He Weisheng, Asia rates and FX strategist, Citi:
In the past, other than outright intervention, Korean authorities have set limits on banks FX forward positions, charged a levy on banks’ non-core foreign currency deposits and re-imposed the withholding tax. The main purpose of such measures were to stem Korea’s short-term foreign currency borrowing which were used to finance US dollar/Korean won selling and limit the foreign fixed income flows. They were effective to some extent. For instance, in June 2010, Korea cut the maximum position limit on banks’ FX forward position and short-term foreign currency borrowing declined for the subsequent two quarters. However, time around, we believe these “macro-prudential measures” will be less effective, as the selling of US dollars against the won mainly comes from exporters.

Frances Cheung, senior strategist Asia ex-Japan, Credit Agricole CIB (pictured):
The Korean authorities appear to be more concerned over the won’s volatility than its strength. Korea was hit particularly hard by the US dollar liquidity squeeze at the height of the credit crisis in late 2008. A high external debt level was seen as one of the factors leading to a relatively volatile financial market for Korea. Limits on banks’ FX forward position (essentially net long US dollar forward positions) had been reduced since then, yielding improvement in Korea’s external position.