© Reuters. FILE PHOTO: A South Korean won banknote is seen in this illustration May 31, 2017. REUTERS/Thomas White/Illustration
By Choonsik Yoo and Yena Park
SEOUL (Reuters) – South Korea’s plans to ease market restrictions on its currency will raise the status of the won globally and increase business opportunities for local financial firms, the deputy finance minister told Reuters on Thursday.
The new measures, unveiled earlier this week, call for more than doubling trading hours for the won to after midnight local time and allowing qualified global financial firms to trade the currency directly through two onshore spot brokerages.
Deputy Minister Bang Ki-sun said the government was working on follow-up measures with a view to implementing the plans in July next year, while dismissing concerns that the moves could make the victory more volatile.
“We are not allowing the won to be completely freely traded outside the country, but just making it more convertible,” Bang said in an interview with Reuters, adding that the government would continue to monitor financial institutions that trade the won.
South Korea has grown into one of the world’s top 10 economies in just a few decades, but has maintained tight control over its currency market, largely because of the trauma of the country’s near-bankruptcy in the late 1990s during the Asian financial crisis.
South Korea’s economy shrank in the December quarter, but Bang said the latest information showed it would return to growth in the January-March period, without giving specifics.
He said there was no significant factor seen behind the massive outflow of foreign funds in the last two consecutive months from the local bond market, other than the fact that a large amount of bonds were maturing during that period.
RISKS FROM THE FALL OF THE REAL ESTATE MARKET
Bang also said there was little danger of South Korea’s cooling housing market causing systemic risk to the larger financial system, noting that policy measures had succeeded in easing money market tensions linked to real estate development projects.
House prices in South Korea fell 1.98% in December from the previous month, the fastest decline since data began being published in late 2003 and the seventh straight month of decline.
“While there may still be companies that run into trouble individually, we can deal with them with targeted measures, but overall, I don’t see the issues related to the real estate market causing broader systemic risk,” Bang said.
The yield on three-month commercial paper rose more than 200 basis points in a few weeks from just above 3% at the end of September last year on concerns about a possible debt default by investors.
The government, along with the financial regulator and the central bank, have since stepped in with a series of bailouts and yields have fallen again by more than 100 bps in a matter of weeks.
As for the won’s rapid rise of more than 15% in the past three months, Bang downplayed its impact on exports, saying the country’s exporters now compete on the strength and quality of their brands, not prices.
The comment contradicts the long practice of South Korean authorities expressing concern about the negative impact on the price competitiveness of their export goods abroad.