Won-dollar trades made up 20.4% of global NDF volume last year
Share rose 1.7 percentage points in three years, ranking second behind Indian rupee
Offshore contracts settled in dollars at maturity used for hedging and speculation
Authorities step up scrutiny at expanded macro-fiscal-financial meeting
The offshore non-deliverable forward market has been identified as the primary driver of the recent won-dollar exchange rate skew, and data show the won accounted for more than 20 percent of all global NDF trading last year.
According to the International Swaps and Derivatives Association and the Bank for International Settlements, the won-dollar pair made up 20.4 percent of average daily global NDF trading volume last year, up from 18.7 percent in 2022 — a gain of roughly 1.7 percentage points over three years.
The won's share ranked second globally last year, trailing only the Indian rupee-dollar pair at 21.2 percent. The Taiwan dollar-dollar pair followed at 19.6 percent, with the Brazilian real-dollar pair at 14 percent. Together, those four currency pairs accounted for 75.2 percent of global NDF volume.
Overall NDF trading has also surged. Average daily NDF turnover rose 28.6 percent over three years, from $259.1 billion in 2022 to $333.2 billion in 2025 — nearly double the $127.3 billion recorded in 2013.
An NDF is a forward foreign exchange contract traded offshore, in which parties agree to buy or sell a currency at a predetermined rate on a set future date. Unlike conventional foreign exchange transactions, no actual currency changes hands; instead, only the difference between the contracted rate and the spot rate at maturity is settled in dollars.
NDFs were originally introduced as a hedging tool for emerging-market currencies subject to capital controls. Today, however, hedge funds and other players widely use them for speculative currency bets as well.
Foreign exchange authorities have singled out speculative NDF-centered trading as the main culprit behind the recent exchange rate skew and are drawing up countermeasures. Key steps under consideration include monitoring speculative moves that ride the won's weakness and suspected market-disrupting activity, and channeling NDF trading into the domestic foreign exchange market. The shift marks a change in tone from the authorities' previous emphasis on supply-demand imbalances — such as domestic investors' growing exposure to US equities and foreigners' net selling of Korean stocks — as the primary cause.
The two heads of foreign exchange policy have also spoken out in quick succession against speculative trading. Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol said at an emergency market review meeting on June 7 that "the herding behavior driven by offshore NDF derivative trading is affecting our foreign exchange market." Bank of Korea Governor Shin Hyun-song has raised the issue of NDF's influence on the domestic foreign exchange market on multiple occasions, saying "the tail is wagging the dog."
The won-dollar rate has stubbornly refused to fall below the 1,500-won level, and some inside and outside the authorities have begun calling it the "new normal." The rate closed above 1,500 won for 16 consecutive trading sessions through Tuesday — the second-longest such streak since 49 consecutive sessions during the financial crisis in late 1997 and early 1998. On Wednesday, the won-dollar rate opened at 1,525 won in the Seoul foreign exchange market, up 12.9 won from the previous session.
On Wednesday, Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol, Minister of Planning and Budget Park Hong-keun, Financial Services Commission Chairman Lee Eok-won and Bank of Korea Governor Shin Hyun-song convened an expanded macro-fiscal-financial meeting at the Government Seoul Complex. They agreed to closely monitor the impact on small and midsize importers and import-processing firms exposed to the rising exchange rate, and to strengthen coordination among relevant agencies to stabilize household finances and manage risk.
Separately, the Financial Supervisory Service held a foreign exchange market stabilization meeting on Tuesday, chaired by Deputy Governor Kim Seong-uk, who oversees banking and small financial institutions. Executives in charge of foreign currency and funding at major commercial banks — including KB Kookmin, Shinhan, Hana, Woori, NH NongHyup and SC First Bank — as well as domestic branches of foreign banks including State Street and HSBC attended.
Deputy Governor Kim urged banks to comply with foreign exchange market trading norms on their own initiative and to strengthen internal controls to prevent market-disrupting behavior amid excessive volatility.
The FSS called on banks to refrain from aggressive promotional events tied to dollar-denominated deposits in the current high-volatility environment and to improve consumer guidance on the risk of foreign exchange losses.
The regulator also urged banks to avoid speculative foreign exchange transactions that could drive excessive exchange rate moves, warning it would take strict action against market-disrupting behavior such as price manipulation. It specifically asked for active cooperation to ensure that NDF derivative trading does not amplify volatility or trigger excessive herding in the domestic foreign exchange market.
The FSS also said it plans to temporarily tighten oversight of major banks by shortening the monitoring cycle for foreign currency positions from monthly to weekly or even daily.
In addition, the FSS said it would extend by six months — through year-end — a previously granted grace period for supervisory measures related to its advanced foreign currency liquidity stress test, which had been set to expire in June. Banks were asked to strengthen their own foreign currency liquidity management in the meantime.
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