Guidelines for global finance

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Guidelines for global finance

Authorities are planning to tighten regulations on foreign exchange transactions at financial institutions.

Their goal is to prevent financial institutions from managing foreign currencies beyond their capacity.

The Financial Supervisory Commission announced it will publish guidelines for financial institutions in order to control foreign-currency liquidity and derivatives and encourage these institutions to include more long-term financing in their foreign loan portfolios.

It will place a cap on foreign asset holdings by banks to prevent excessive borrowing from abroad.

A year has passed since local financial markets suffered turbulence from a financial meltdown on Wall Street, so it may be like mending the pen after the sheep are gone.

However, this is a necessary step as a preventive wall against foreign currency crises in the future, even if the new measure is seen by financial institutions as restrictive.

The global financial crisis hit local financial companies because they were largely unable to control their foreign exchange assets.

These companies were rich in domestic currency, yet their entire system was shaken when foreign liquidity slowed on jittery global credit markets. The regulation will serve as a kind of vaccine to prevent new global financial crises from contaminating and wreaking havoc on the domestic market.

But we cannot fight foreign currency quandaries by merely regulating and disciplining our troops. There must be a greater international effort to keep the global currency market stable.

We have seen how a crisis in one country can affect markets worldwide.

We need to demand a more aggressive role from global regulatory bodies like the Financial Stability Board, the policy-coordinating arm of the Group of 20 nations, to help us revamp the global financial system.

No firewall will be tough enough to weather another global financial meltdown.

Working out measures against local and foreign financial crises should be our top priority as we prepare for next year’s G-20 summit in Korea.

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