Professor says Korea’s monetary policy is sound

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Professor says Korea’s monetary policy is sound

Harvard Kennedy School professor Jeffrey Frankel, a well-known expert on emerging markets, expressed no worries over the Korean currency’s recent appreciation due to the country’s robust current account surpluses.

At a lecture hosted by the Korean Economic Association and the Korea Institute of Finance in Seoul yesterday, Frankel said countries like Korea, which have high foreign exchange reserves and large current account surpluses, would be safe from the so-called “push” factors including the U.S. Federal Reserve’s tapering in the coming months.

“Although the won has appreciated, it has large current account surpluses so it is now in good shape,” Frankel said.

But the professor proposed that the Korean central bank and the central banks of similar middle-sized countries should have intermediate exchange rate regimes, neither firmly fixed nor free floating, in order to keep away outside risks.

“There is no single right exchange rate regime for all countries, but a systematic managed floating system will be desirable for most emerging countries,” Frankel said.

Under the system, a country will be able to purchase its own currency when it depreciates and sell it when the value goes up. The system will prevent speculators from targeting exchange rates, the professor added.

Frankel, who visited Korea for the first time in 22 years, praised the country’s strong trade surpluses and high foreign exchange reserves accumulation, which he says will not threaten the economy, even though the won has appreciated recently.

In his presentation, Frankel said countries with less foreign exchange reserves have been hit hard by past global financial crises.

The professor also said central banks around the world should take into account foreign exchange rates when they determine their key interest rates.


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