South Korea to ease currency restrictions to improve business climate
2023.02.09 07:52
South Korea to ease currency restrictions to improve business climate
By Kristina Sobol
Budrigannews.com – A vice finance minister told Reuters on Thursday that South Korea’s plans to loosen restrictions on its currency market will raise the won’s global status and provide local financial firms with more business opportunities.
The new measures, which were unveiled earlier this week, call for allowing qualified global financial firms to directly trade the won through two onshore spot brokerage houses and more than doubling the trading hours for the won until past midnight local time.
Vice Minister Bang Ki-sun dismissed concerns that the moves could make the won more volatile and stated that the government was working on follow-up measures to implement the plans in July of next year.
Bang stated, “We are not fully allowing the won to be freely traded outside the country but just make it more convertible.” He also stated that the government would continue to exercise oversight over the financial institutions that trade the won.
Despite being one of the world’s top 10 economies in just a few decades, South Korea has maintained a tight grip on its currency market primarily due to the trauma of its near-supranational default in the Asia financial crisis of the late 1990s.
The December quarter saw South Korea’s economy shrink, but Bang said, without providing specifics, that the most recent information suggested that growth would resume in the January-March period.
Other than the large number of bonds coming to an end, he claimed that there was no significant reason for the massive outflows of foreign funds from the local bond market over the past two months.
Noting that policy measures have been successful in diffusing money market strains related to property projects, Bang also stated that there was almost no risk that South Korea’s cooling real estate market would cause a systemic risk to the larger financial system.
The fastest decline since data releases began in late 2003 and the seventh consecutive month of decline in South Korean house prices occurred in December, when they fell 1.98 percent from a month earlier.
“We can deal with them with targeted measures, but in general, I don’t see the real estate market-related problems will cause a broader systemic risk,” Bang stated. “While there could still be companies falling into trouble individually, we can deal with them.”
Concerns about potential debt defaults by property developers caused the three-month commercial paper yield to soar by more than 200 basis points (bps) in just a few weeks from just above 3% at the end of September of last year.
Since then, the government, financial regulator, and central bank have intervened with a series of assistance programs, and the yield has decreased by more than 100 basis points in a few weeks.
Bang minimized the impact of the won’s rapid gain of more than 15% over the past three months on exports, claiming that the country’s exporters now compete on quality and brand power rather than prices.
Bang explained the decreased impact of the foreign exchange rate on exports:
“Korea’s export structure has been changing toward relying more on quality competitiveness, and so, we should make more efforts to that direction.”
