Currency liberalizations planned as MSCI inclusion targeted

Economy

Published: 25 Jan. 2022, 20:03

Currency liberalizations planned as MSCI inclusion targeted

Korea said Tuesday it plans to improve the foreign exchange market system to better ensure foreign investor market access as it seeks to win developed market status from Morgan Stanley Capital International (MSCI).

To this end, the government is considering extending the foreign exchange market operating hours and permitting foreign financial institutions to directly take part in the interbank currency market. It is also mulling easing regulations on offshore transactions of the Korean won.

“The government will take into account ways to enhance foreign investors’ market access and stabilize the foreign exchange market,” Finance Minister Hong Nam-ki said at a meeting on external economic policy.

MSCI has categorized the Korean stock market for years as an emerging market, saying the absence of an offshore currency market for the Korean won is one of the main reasons for its decision.

In November last year, the government said it will push again to win the MSCI developed market status, with the aim of getting its stock market first placed on the watch list during the agency’s upcoming June review.

The government conducted a survey on global investment banks and foreign financial institutions on the main inconveniences of using the Korean FX market late last year.

Among their major complaints were the impossibility of directly participating in South Korea’s foreign exchange market and the difficulty of currency conversion after the market closed.

Currently, only Korean financial institutions with state authorization are allowed to take part in the interbank foreign exchange market. Korea’s foreign exchange market is open from 9 a.m. to 3:30 p.m.

The government plans to come up with detailed measures after consulting with local financial institutions in a bid to minimize their impact on the market.

In response to the MSCI’s demand for the offshore currency market, the Korean government has said the Korean currency’s convertibility into other currencies has been sharply enhanced compared with the past, as the won has become one of the most highly traded currencies.

Trading in the offshore non-deliverable forward market remains high, which enables foreign investors to effectively engage in foreign exchange trading for 24 hours, it said.

For the upgrade to the MSCI developed market status, a country is required to first be placed on the watch list for at least one year. In 2008, Korea was placed on such a list but failed to be granted the status later. It has been excluded from the watch list since 2014.

Meanwhile, Korea plans to submit an official application in April to join a mega Asia-Pacific free trade agreement involving 11 nations.

The government will begin social discussions with related sectors to accede to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) as part of its efforts to expand mega FTAs in the Asia-Pacific region.

The CPTPP is the renegotiated version of the Trans-Pacific Partnership (TPP) led by the former U.S. President Barack Obama administration.

In 2017, then U.S. President Donald Trump withdrew from the TPP, widely seen as a key counterweight to China’s growing economic clout.

The CPTPP, launched in December 2018, has been signed by 11 countries, including Japan, Australia, Canada, New Zealand and Mexico.

Korea’s accession to the CPTPP could be a major boost for its move to expand its trade portfolio, in addition to its planned implementation of the Regional Comprehensive Economic Partnership (RCEP). The RCEP, which was inked in November 2020, will go into effect in February.

The government will also push to ink more free trade deals with emerging markets this year. Currently, the country has signed FTAs with 57 countries, including the United States and China.

The move is aimed at expanding its FTA portfolio to cover 90 percent of the global gross domestic product from the current 85.4 percent.

The country plans to speed up its FTA negotiations with Uzbekistan, Russia, Mexico and Egypt this year, according to the ministry.

Yonhap