The Effectiveness of Korea's Capital Flow Management System and its Implications on Exchange Rate Policy

Jinsoo Lee (KDI School of Public Policy and Management) *

Journal of International Logistics and Trade

ISSN: 1738-2122

Article publication date: 31 December 2014

Issue publication date: 31 December 2014

192
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Abstract

This paper examines the effectiveness of the three macro-prudential measures introduced by the Korean government in 2010 and 2011: (i) introduction of limit for FX forward positions of domestic banks and foreign bank branches, (ii) reintroduction of tax on foreign investors' earnings from Korean government bonds, and (iii) imposition of macro-prudential stability levy on non-deposit foreign currency liabilities appeared in bank balance sheets. The results show that the three measures were not successful: The limits of FX forward position did not lead to the decrease in foreign borrowings. The reintroduction of the tax did not reduce foreign investments in Korean government bonds. Lastly, the levy on non-deposit foreign currency liabilities did not lower the foreign borrowings from the banks and did not result in more financing through deposits for banks. The ineffectiveness of the capital flow management system in controling the amount of foreign capital flows implies that the system might not be effective in mitigating the pressure on exchange rate caused by excessive volatility of foreign capital flows.

Keywords

Citation

Lee, J. (2014), "The Effectiveness of Korea's Capital Flow Management System and its Implications on Exchange Rate Policy", Journal of International Logistics and Trade, Vol. 12 No. 3, pp. 77-96. https://doi.org/10.24006/jilt.2014.12.3.77

Publisher

:

Emerald Publishing Limited

Copyright © 2014 Jungseok Research Institute of International Logistics and Trade

License

This is an Open-Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/licenses/by-nc/4.0/) which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited


Corresponding author

*Corresponding Address: 85 Hoegiro, Dongdaemun-Gu, Seoul, 130-722, Korea(ROK). Tel: 822-3299-1060. Fax: 822-968-5072. Email:

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