24-hour trading for the South Korean won: a financial breakthrough and a major liquidity test under exchange-rate pressure

South Korea takes a key step toward exchange rate liberalization, but the timing is delicate.

The Korean won will officially achieve 24-hour trading starting July 6, marking the most significant loosening of currency controls in decades and a core measure for Seoul's bid to upgrade South Korea to developed market status under MSCI.

However, this historic shift comes as the won is under pressure, with the exchange rate falling to a 17-year low and a cumulative decline of over 6% this year.

At the same time, South Korea’s stock market, exports, and current account surplus have all performed remarkably well, drawing widespread attention to the divergence between the exchange rate trend and the economic fundamentals.

Seoul has repeatedly warned against speculative trading, and regulators this year have conducted special inspections of major banks' market conduct and urged exporters to convert their foreign exchange earnings to stabilize the won, but with limited results.

For the market, the 24-hour trading system means narrower arbitrage opportunities, reduced disruption to exchange rate trends from the offshore non-deliverable forward (NDF) market, and a potential decline in the cost of holding the won. However, the risk of increased short-term volatility cannot be ignored.

Historical turning point: From the 1997 crisis to the largest opening

Behind South Korea’s foreign exchange transformation lies a nearly three-decade-long entanglement between the country and its currency controls.

During the 1997 Asian financial crisis, the won depreciated by more than half in just two months, bringing South Korea to the brink of sovereign default. Lew Changbeom, a former foreign exchange trader at Bank of America and JPMorgan Chase, recalled:

At that time, the won fell more than 10% in a single day, and sometimes the fluctuation exceeded 20%. I really feared the country would collapse.

The core lesson from that crisis: never be short of dollars.

Since then, South Korea has massively rebuilt its foreign exchange reserves. During the crisis, reserves were only sufficient to cover import needs for four to five days, and controls on the won were tightened: trading hours were restricted, settlements had to remain onshore, and transactions were required to go through designated banks.

Today, South Korea has accumulated one of the largest foreign exchange reserves globally, providing strong market buffers.

Currently, the won trades for 17 hours a day, with the market closed from 2 a.m. to 9 a.m. Seoul time.

This gap overlaps with the U.S. trading session, forcing global investors to manage exchange rate risk through NDFs while holding Korean assets, thereby generating a large amount of arbitrage trading exploiting the onshore-offshore price differential, which exacerbates the market volatility that regulators are wary of.

Economic restructuring: South Korea becoming a net capital exporter

The deep logic behind this opening lies in the fundamental transformation of South Korea’s economic structure.

For decades, strong exports and a sustained current account surplus were natural supports for the won. Exporters repatriated foreign exchange earnings, and foreign investors continuously purchased Korean assets, creating a virtuous cycle. However, this mechanism is weakening.

In the first four months of this year, South Korea recorded a current account surplus of $102.7 billion, but a large amount of funds did not return to the domestic market: foreign direct investment and residents’ purchases of overseas securities totaled outflows of over $60 billion, while foreign investors net sold approximately $43.6 billion in Korean stocks.

In other words, South Korea is increasingly showing characteristics of a net capital exporter—dollars earned are being invested overseas rather than recycled back into the domestic economy.

The National Pension Service continues to increase its overseas allocation, involving selling won to buy dollars; market concerns over U.S.-Korea trade negotiations also add extra pressure, with Seoul having pledged $350 billion in U.S. investment.

This structural change makes the policy logic of restricting the won’s trading hours increasingly untenable. Claire Huang, Senior Macro Strategist for Asia at AXA Investment Managers, said:

Extending trading hours is a necessary step to enhance the won’s presence in global financial markets. To make the won’s trading convenience comparable to G10 currencies, liquidity must be ensured during extended hours.

The "monitoring room" in Sejong: The policy nerve center faces new pressures

Deep inside the Sejong government complex, about two hours’ drive from Seoul, lies a room known as "the box," the nerve center for South Korea’s foreign exchange market pressure.

According to Bloomberg, citing insiders, inside this room marked "No Entry," finance ministry officials monitor the screen all day, closely tracking every won price movement and trading volume, ready to assess whether intervention is needed.

To prepare for 24-hour trading starting July 6, the team has fully strengthened its readiness—improved meal standards, added one more official, and even the simple folding cot may be replaced with a proper bed.

However, after July 6, the difficulty of "the box" will increase significantly. 24-hour trading means authorities cannot catch a breather after the market closes, and the intervention window will face more stringent tests. Seungheon Lee, former Senior Deputy Governor of the Bank of Korea, said:

Foreign exchange authorities should abandon the mindset of strict market control. To achieve substantial results, institutional barriers that impede trading must be eliminated.

Preparations: Banks expand teams, investors seek arbitrage opportunities

To welcome the era of 24-hour trading, major financial institutions are accelerating their preparations.

Woori Bank, one of South Korea’s largest commercial banks, obtained a license in the UK at the end of May to support won-related business outside Korean market trading hours; several major banks have expanded or are expanding their foreign exchange trading teams in London and Seoul.

On the investor side, market participants have also sniffed out new trading opportunities.

Ed Al-Hussainy, Portfolio Manager at Columbia Threadneedle in New York, said:

A large amount of capital will attempt to enter this market using carry trade strategies.

In the long run, analysts generally believe that 24-hour trading will help smooth exchange rate trends and reduce structural frictions, but the risk of increased short-term volatility also exists.

Bumki Son, Economist at Barclays, pointed out:

Greater market openness may come with higher volatility, which policymakers should keep in mind.

Ali Bora Yigitbasioglu, Senior Investment Manager for Emerging Market Fixed Income at Pictet Asset Management, holds a more optimistic view, believing that the institutional reform itself sends a positive signal:

This transparency demonstrates South Korea’s commitment to international standards. Although directional exposure still depends on the semiconductor export cycle, eliminating these operational friction points will make holding Korean assets structurally more attractive.

Deputy Finance Minister Moon Jisung characterized this reform as a strategic deployment beyond the regulatory level. He told media:

This is not just a regulatory reform; it is key infrastructure to elevate the accessibility and convenience of the Korean capital market to the level expected of a developed market.

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