SEOUL, Sept. 28 (Xinhua) -- South Korea's foreign exchange authorities planned to provide the U.S. dollar liquidity into the financial system through repurchase agreements when necessary, the country's central bank and finance ministry said Monday.
The Ministry of Economy and Finance and the Bank of Korea (BOK) said in a joint statement that the authorities completed preparation to offer the dollar liquidity into the financial system via repo deals in a competitive bid.
Under the scheme, the authorities will purchase foreign currency-denominated bonds held by local financial firms, including U.S. government bonds, to offer the dollar liquidity using the country's foreign reserves.
The statement said the repo deals are expected to prevent the systemic risk of the foreign exchange market when the supply and demand of the dollar liquidity destabilizes.
The repo deal is a tool for the central bank to offer liquidity into the market in a credit crunch or absorb ample liquidity.