[IN THIS CORNER...]Do we need a bigger bill than 10,000 won?Delaying the issuance of higher-denomination won bills because of concerns that doing so would perpetuate corruption and inflation is akin to giving up soybean paste for fear that it might become infested with maggots. Higher-denomination bills lead to inflation only when the amount is too excessive and the issuance too hasty.
The 10,000-won bill was introduced in 1973. Since then, South Korea's per-capita income has increased by 22 times. The bus fare went from 20 won to 600 won. Consumer prices increased by 20 to 30 times, meaning that the buying power of a 100,000-won bill would be less than the 10,000-won in 1973. The highest-denominated bill in the European Union is worth 59 times South Korea's highest. Sweden's biggest bank-note is worth 14 times as much as a 10,000-won bill; the United States figure is 12 times,Japan's and the United Kingdom's 10 times.
It is senseless to believe that 100,000-won bills would cause more corruption. Already 100,000-won personal checks and gift certificates circulate widely. Corruption results from the faults in the system and the people, not from numbers on the money.
In January 2001, the government lifted the limit on how much foreign currency South Korean citizens could acquire. They may buy and sell high-denominated foreign currency freely ?so why not domestic currency?
A currency is a means for making exchange of goods more efficient. Yet reckless writing of 100,000-won personal checks produces huge waste in our economy. Issuing, circulating and storing personal checks, plus commissions for issuing the checks and other miscellaneous expenses, amount to more than 1 trillion won a year. Financial institutions incur huge expenses for check processing. Bank customers must wait in line to get personal checks issued. If the time wasted was converted to money, it would be astronomical. Also, merchants tend to decline personal checks for the fear of forgery.
The opponents' arguments are akin to riding a bicycle or a wagon for fear of auto accidents. When socio-political arguments dominate over economic theories and the reality of the market, the pace of economic growth is inevitably affected.
The Bank of Korea insists that it would simultaneously consider higher-denomination bills and changing the currency unit. But the latter issue would have a huge impact on the economy and involves too many factors to be hastily dealt with. Linking the issues would delay the issuance of a higher-denominated bill. It should be a short-term goal; linking it with a mid- to long-term goal is unwise.
By Lee Hyung-man
The writer is vice president of the Korea Center for Free Enterprise.
Since last year, the Bank of Korea has argued for redenominating the currency and for issuing higher-face-value won bills. More recently, the central bank rekindled the argument by submitting the proposal not to the economic section of the presidential transition committee but to its citizen participation center.
I would like to point out some disadvantages of currency redenomination. First, South Korea has not yet done away with illegally-amassed political funds and shady dealings between business and government. Currency redenomination would exacerbate corruption by increasing the number of opaque financial transactions and the size of bribes. It should not happen before the link between business and government is severed and transparency is guaranteed through a political funds act.
Most Koreans have no problem endorsing their personal checks and abiding the real-name financial transactions law. The increasing use of credit cards has reduced the need for holding large amounts of cash. In response to the argument that issuing and processing checks entails unnecessary costs, the lack of transparency and political and economic costs emanating therefrom are a far larger burden on society.
Second, currency redenomination is likely to be costly. New paper money as well as coins need to be manufactured. Vending machines, computer programs and accounting forms across the country would need an overhaul. All of this probably will require billions of won.
Third, contrary to assertions that the won would become a stronger currency or would get a better international image by getting rid of some zeros, countries such as Egypt, Latvia and Oman have small-unit currency but weak economies.
Fourth, currency redenomination would encourage consumption, and subsequent concerns for price increases would cause people to purchase land, jacking up land and real-estate prices.
The Korean economy is currently unstable with compounding problems including snowballing household debt, oil price increases due to the likely war in Iraq, a fall in semiconductor prices and weakness in the export sector, not to mention the North Korean nuclear crisis. Rather than doing its job of stabilizing prices through controlling the amount of money in the economy and adjusting interest rates, the Bank of Korea is preoccupied with currency redenomination and bigger banknotes. This is like asking an emergency-room patient whether she prefers coffee or tea. The Bank of Korea governor should concentrate on monetary policy and seek the trust of the market.
By Kwon Young-joon
The writer is a professor of international business at Kyung Hee University.