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14년 8월 22일 22시 22분 58초

Currency Internationalization, and International Monetary Reform - Korea’s Experience and Future Issues -. The Future of the International Monetary System. December, 2011 Shin, Je-Yoon Vice Minister. SUNGSOO EUN Director General International Financial Policy Bureau

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14년 8월 22일 22시 22분 58초

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  1. Currency Internationalization, and International Monetary Reform - Korea’s Experience and Future Issues - The Future of the International Monetary System December, 2011 Shin, Je-Yoon Vice Minister SUNGSOO EUN Director General International Financial Policy Bureau Ministry of Strategy and Finance Republic of Korea 0 HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 22분 58초

  2. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 22분 58초 Contents Background Ⅰ Internationalization of Korean Won Ⅱ Ⅲ Issues to be discussed 1

  3. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 22분 58초 Contents Background Ⅰ Ⅱ Ⅲ 2

  4. Ⅰ- (1) Current International Monetary System What is the problems? • Highly Volatile & Excessive Capital Flows (But, No Rules to Manage) • → Sudden Stops and Rapid Reversals of capital flows • High Dependence on USD • → Global liquidity fluctuations depending on US economic conditions Development of Financial Sector Dollar domination in FX transactions USD trillion USD trillion 3 Source : The Banker, World Bank, BIS Source : BIS

  5. Ⅰ- (2) Emerging Markets ; Original Sin? Impacts on EMs – Korea’s experience • Original sin • → Financial fragility caused by either ‘currency mismatch’ or ‘maturity mismatch’ • Vulnerability to ‘twin crises’ • → $ 21.4 billion outflows(4% of GDP) in 5 months in 1997 • → $ 69.5 billion outflows(7.5% of GDP) in 4 months in 2008 Capital inflows/outflows (USD, billion) FX rate (won/dollar) movements Asian crisis Global financial crisis 221.9 78.1 116.4 ‘95.1 ‘97.11 ’98.4 ’08.9 ’09.1 ’12.9 Financial Crisis -21.4 -69.5 4 5 months 4 months

  6. Ⅰ- (3) Policy Actions by Korean Government Measures to deal with volatile capital flows • Foreign exchange derivatives position ratio • → ceilings on net foreign exchange derivatives position ratio of domestic banks and foreign bank branches has been set at 30% and 150%, respectively, of their capital • Macro-prudential stability levy • → bank levy is charged on non-deposit foreign currency liabilities at between 2~20bp, depending on the maturities of debt instruments • Restoration of the tax on foreign holdings of KTBs and MSBs • → withholding tax on interest income and capital gains of foreign holdings was restored Macro-prudential stability levy FX derivatives position 5

  7. Deal with volatile capital flows Single currency for the multi-polar economies ? Ⅰ- (4) Needs of Currency Internationalization Problems of current IMS Policy Response Excessive Capital Flows High Dependence on USD Currency internationalization efforts by emerging economies is needed for more resilient and stable international monetary system. 6

  8. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 22분 59초 Contents Internationalization of Korean Won Ⅱ Ⅱ Ⅲ 7

  9. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Borrowing by non-residents was allowed up to KRW 30 billion Purchase of won-denominated securities by non-residents was liberalized Payment and settlement of current account transactions in won were liberalized Deposits were liberalized via ‘free won account’ Contracts of won-denominated current transactions and capital transactions were liberalized Ⅱ- (1) Current Landscape of Korean Won Korea’s currency internationalization efforts so far • No hurdle in basic transaction of won and won-denominated current transaction • Regulations concerning capital account transactions in won to some extent 1988~1992 1996 1999~2001 2001 * borrowing over KRW 30 billion * securities issuance abroad 2001~2007 reported prohibited free 8

  10. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 35470 Ⅱ- (1) Current Landscape of Korean Won 28194 15762 International use of the Won Currency use in international trade of Korea • medium of exchange / unit of account • → won is hardly used in foreign trade of Korea • store of value • → foreign investments in Korean Bond have increased recently 7477 *2010, percentage of total trade 3128 1224 <Import> 12.10 Purchase of KTBs by foreign Central Banks *2008.1-2012.10, KRW billion <Export> 9 Source : Korea Customs Service

  11. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Ⅱ- (1) Current Landscape of Korean Won Comparison with other emerging market currencies • won-denominated bonds account for only 0.6% of total EM currencies bond issuance • trading volumes of won FX derivatives are bigger than those of most EM currencies • → Still, however, it constitutes a small amount of world total trading volumes of FX derivatives • → the lack of hedging instruments could be a major impediment to more use of EM currencies International bond issuance in EM currencies EM currencies: OTC FX derivatives turnover *share percentage out of 200 percent *percentage of Total EM issuance 10 Source : BIS Quarterly Review March 2011 Source : BIS Quarterly Review March 2011

  12. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Ⅱ- (2) Key Challenges for Internationalization of the Won Potentials for internationalizing Won • Demand side factors • → Economic size, Network effects, Invoicing practices • Supply side factors • → Domestic financial market depth, Financial openness, Policy support Economic size : Share of World GDP (2011, %) “Efforts to create international demand for the Korean won were hampered due to established practices of pricing and invoicing trade in U.S. dollar and European currencies.” • Takagi, 2009; Xu, 2009 11 Source : IMF WEO on Oct 2012

  13. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Ⅱ- (2) Key Challenges for Internationalization of the Won Risks to monetary and financial stability • Increased offshore activities and offshore-onshore links • → reducing the authorities’ control over monetary aggregates and domestic interest rates • → straining the financial system’s ability to adequately absorb capital flows Financial openness Monetary independence Exchange rate stability 12

  14. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Ⅱ- (3) Way Toward Successful Won Internationalization Balanced approach • Push forward won internationalization • → But balanced approach is needed to ensure stability • Trade first, capital transaction second 1st step 2nd step Trade Expanding the use of won Capital transaction Full Liberalization Macro-prudential measures 13

  15. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Ⅱ- (3) Way Toward Successful Won Internationalization Cooperation with China and Japan • Korea’s position between two huge economies ; “double edged sword” Challenge for expanding regional acceptance of Won Chance for enhancing Global use of Won 117 Kor-Chi-Jap’s share of global GDP (2011, %) Export and Import Values of Kor-Chi-Jap *2011, US$ billion 69 20.5 10.5 8.4 134 86 1.6 162 68 40 121 14 184 Source : Ministry of Finance, Japan Ministry of Knowledge and Economy, Korea Source : IMF WEO on Oct 2012

  16. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Ⅱ- (3) Way Toward Successful Won Internationalization Payments in Won and RMB for trade between Korea and China • Use of currency swap between Korea and China (KRW 64 trillion / RMB 360 billion) • → BOK supplies RMB liquidity to Korean banks and PBOC supplies Won liquidity to Chinese banks 117 PBOC BOK 69 Account of BOK Account of PBOC RMB Won Won Won Chinese Bank Korean Banks Ask payment to the exporting company Won Won Chinese Importing company Korean Exporting company 15 Commodities

  17. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 One, Simplified and Flexible From 120 bn US$ to 240 bn US$ From 20% to 30% in 2012, and review in 2014 From 90 days to 1 yr(linked), to 6 mths(de-linked) Ⅱ- (4) Way Toward Successful Won Internationalization Regional Financial Cooperation (1) • Chiang Mai Initiatives Multilateralization • → firewall for Asian countries to respond to regional crisis Agreements in 2012 AMRO Doubling the total size Increasing the IMF-delinked portion Lengthening the maturity International organization Introducing crisis prevention function 16

  18. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 To produce tangible outcomes, current and critical ongoing issues need to be further developed To strengthen the momentum for the ABMI discussion, important but undiscussed issues related to bond markets should be added To meet and accommodate the changing global financial needs, including mitigation of volatility in the capital flow, relevant issues need to be addressed Ⅱ- (5) Way Toward Successful Won Internationalization Regional Financial Cooperation (2) • Asian Bond Market Initiative • → develop local currency denominated bond markets • → recycle regional savings into regional investments New roadmap+ in 2012 Direction 1 Direction 2 Direction 3 17

  19. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Contents Issues to be discussed Ⅲ Ⅱ Ⅲ 18

  20. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Ⅲ-(1) Sequencing Issues Pre-requisite steps to successful currency internalization Ensuring macroeconomic stability Capacity building to control liquidity and credit growth effectively Developing or deepening domestic financial markets Capital account liberalization Are Asian emerging countries ready for currency internationalization? What is needed to facilitate the process towards currency internationalization? 19

  21. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Ⅲ-(2) The Benefits and Costs of Currency Internalization Benefits Costs • Reducing the need for large foreign • exchange reserves • Eliminating the exchange rate risk • in external transactions • Restricting the pursuit of domestic • monetary policy • Worsening the problems caused by • excessive capital inflows Isit good for emerging market countries to push forward their currency internationalization? How can we maximize the benefits and minimize the costs? 20

  22. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Ⅲ-(3) The Role of Capital Flow Management Advanced Countries Emerging Market Countries • Capital volatility caused by pull factors • (differences in growth rates and • interest rates etc.) • Prudent macro-economic policy first, • CFM as the last resort • CFM complementing macro-economic • policies (No sequence in both) • Capital volatility cased by push factors • (spillovers of advanced countries’ • expansionary monetary policies) • Overall and mandatory • capital liberalization • Sequential capital liberalization • (Reducing negative impacts of capital • liberalization is first) Capital Flow Management (CFM) Is CFM helpful for Emerging Markets’ currency internationalization and stable IMS? 21 Is it possible to develop a global rule to manage capital flows?

  23. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Ⅲ-(4) Currency Cooperation at the Regional Level Short-term Long-term • Use of local currency • for local trade settlement • Asian common currency? • (Lessons from the Eurozone crisis) Asian Monetary Unit How can we establish effective local currency trade settlement system in Asia? Is it desirable or realistic for Asia to have a single currency? 22

  24. HKCMG2010\Korea\MOSF\IR\100305_ROK_Presentation_ver20.ppt 14년 8월 22일 22시 23분 0초 Thank you !! 23

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