Seoul puts brakes on run-away won trend
By Yoo Choonsik |
June 14, 2010, Monday
|
Print Edition
Print Edition
SOUTH Korea announced yesterday long-anticipated currency controls, saying it aimed to curb rapid shifts in capital flows that were linked to short-term foreign debt and posed a risk to the world's ninth-biggest exporter.
Officials, alarmed by sharp swings in the won during recent market turbulence caused by Europe's debt problems, have been priming investors for weeks for action aimed at stabilizing its currency and cooling overseas borrowing.
The new restrictions slap limits on banks' and other financial institutions' currency forwards, cross-currency swaps as well as non-deliverable currency forwards.
"These measures are aimed at reducing the volatility in capital flows that poses a systemic risk in the country," South Korea's finance ministry, two financial regulators and the central bank said in a joint statement.
The rules will cap domestic banks' and non-bank financial institutions' currency forwards and derivatives at 50 percent of equity capital.
The cap for foreign bank branches was set at 250 percent of equity to account for their lower capital, which on average is just 1/30 of that held by domestic banks.
Officials brushed off suggestions that the regulations could hurt investor confidence.
"We will stick to a principle of an open market and liberalization of capital transactions," said Deputy Finance Minister Yim Jong-yong. "That is a promise we have globally made. We expect foreigners to invest more in the longer term thanks to reduced volatility."
Seoul has said the nation is particularly vulnerable to general market gyrations because of its high levels of short-term foreign debt.
Officials, alarmed by sharp swings in the won during recent market turbulence caused by Europe's debt problems, have been priming investors for weeks for action aimed at stabilizing its currency and cooling overseas borrowing.
The new restrictions slap limits on banks' and other financial institutions' currency forwards, cross-currency swaps as well as non-deliverable currency forwards.
"These measures are aimed at reducing the volatility in capital flows that poses a systemic risk in the country," South Korea's finance ministry, two financial regulators and the central bank said in a joint statement.
The rules will cap domestic banks' and non-bank financial institutions' currency forwards and derivatives at 50 percent of equity capital.
The cap for foreign bank branches was set at 250 percent of equity to account for their lower capital, which on average is just 1/30 of that held by domestic banks.
Officials brushed off suggestions that the regulations could hurt investor confidence.
"We will stick to a principle of an open market and liberalization of capital transactions," said Deputy Finance Minister Yim Jong-yong. "That is a promise we have globally made. We expect foreigners to invest more in the longer term thanks to reduced volatility."
Seoul has said the nation is particularly vulnerable to general market gyrations because of its high levels of short-term foreign debt.
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