Seoul: Banks and other financial institutions will temporarily be exempted from the foreign exchange stabilization levy starting next month as part of measures announced Friday by the Bank of Korea (BOK) to boost the supply of U.S. dollars in the domestic market.

According to Yonhap News Agency, for six months beginning the start of January, financial institutions will be exempt from paying the special levy, while the central bank will also pay interest on foreign currency reserve requirements held by financial institutions, according to the BOK. Reserve requirements refer to funds that financial institutions are required to deposit with the central bank as a portion of customer deposits.

The foreign exchange stability levy is a system that requires financial institutions to pay fees when they hold foreign currency liabilities above a certain level. Waiving the levy is expected to reduce institutions' foreign currency borrowing costs, which, in turn, may increase the supply of dollars and other foreign currencies in the domestic market, while interest payment on foreign currency reserve requirements may encourage banks to hold more foreign currency, strengthening their ability to absorb liquidity shocks and helping to reduce market volatility.

"We expect the reduced burden of the foreign exchange stability levy on domestic financial institutions to expand incentives to supply foreign currency in the local market," the BOK said. The measures come as the Korean won has fallen sharply against the U.S. dollar. The local currency closed at 1,479.8 won per dollar on Wednesday, the lowest level since April 9, when the won closed at 1,484.1 won against the greenback.