December 05, 2024

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Dealers work at Hana Bank's dealing room in central Seoul on Wednesday, in front of a television screen displaying a news headline about the enactment of martial law for the first time in 45 years. (Yonhap)

Six hours of unexpected martial law have rattled local markets, with volatility expected to persist despite the lifting of the emergency measure.

In response to potential aftershocks, local authorities have pledged comprehensive actions to ensure normal operations and stabilize volatility, including the government's commitment to injecting "unlimited liquidity."

"The foreign exchange market and overseas trading of Korean stocks, unsettled by last night’s martial law declaration, are gradually stabilizing following its reversal," Deputy Prime Minister and Finance Minister Choi Sang-mok said during an emergency meeting on Wednesday morning with other financial authorities, announcing the decision to resume normal operations of all markets.

Bank of Korea Governor Rhee Chang-yong, Financial Services Commission Chairman Kim Byoung-hwan and Financial Supervisory Service Governor Lee Bok-hyun attended the meeting.

Following President Yoon Suk Yeol's declaration of martial law at around 10:30 p.m., the Korean won dropped to a two-year low against the US dollar during offshore trading, briefly touching 1,444 won per dollar, before closing at 1,415.8 won. This is the first time since 2022 that the won has surpassed the 1,440 level.

Reaffirming earlier statements, authorities pledged unlimited liquidity “until the stock, bond, short-term funding and foreign currency markets are fully normalized.”

In a separate meeting with government and financial leaders, FSC Chairman Kim outlined the plan, which includes a 10 trillion won ($7.08 billion) stock market fund, a 40 trillion won bond market fund and purchase programs for corporate bonds and commercial paper.

The central bank is boosting short-term liquidity through unconventional repurchase agreements, or repos, where it buys bonds from financial institutions with an agreement to repurchase them later.

The BOK has broadened purchase targets to include industrial, small- and medium-sized enterprise, export-import and agricultural bonds, along with special bonds from nine public institutions and financial bonds under the Banking Act. Eligible institutions now include all domestic banks, foreign bank branches, securities firms and futures companies.

The repo operations will remain in effect until Feb. 28 next year.

Meanwhile, the central bank added it will hold two daily meetings for the time being to monitor market conditions and coordinate responses.

The local banking sector also moved swiftly, with major banks and their holding groups holding emergency board meetings to ensure operational continuity. Woori Financial Group Chairman Yim Jong-yong emphasized the need to “prevent technological issues and other incidents to ensure airtight internal controls,” noting that the situation is expected to stabilize soon.

KB Financial Group and Hana Financial Group also held early-morning meetings, while Shinhan Financial Group reportedly convened a risk management committee around midnight, shortly after the emergency situation unfolded.

While local banks' foreign currency procurement and refinancing continue as usual, digital banks offering around-the-clock foreign currency exchange temporarily suspended their systems overnight due to heightened volatility.

"Due to rising volatility and surged traffic, we had to temporarily halt currency exchange to stabilize the market and protect consumers," an official from Toss Bank, which paused its service from 1:20 a.m. to 9 a.m. Wednesday, said.

Kakao Bank also briefly halted its exchange service, while K bank users experienced a brief app glitch.

Local cryptocurrency exchanges resumed normal operations after a temporary shutdown due to increased traffic. By 11 a.m. Wednesday, Upbit's past 24-hour transaction volume reached $29.26 billion, up 57 percent from the previous day, while Bithumb saw $6.44 billion, a 30 percent increase.

This surge followed a sharp decline in coin prices due to panic selling. Bitcoin briefly fell below 89 million won shortly after martial law was declared, dropping nearly 33 percent from the previous day. Following the lifting of emergency measures, Bitcoin rebounded to around 134 million won on Upbit by Wednesday morning, up 0.7 percent from Monday.

Altcoins also recovered. Ethereum, which fell 35 percent, and Ripple, which dropped nearly 50 percent, were both up about 2 percent from Monday’s closing price, with Ethereum trading at 5.15 million won and Ripple at 3,600 won around 11 a.m. Wednesday.

By Choi Ji-won (jwc@heraldcorp.com)