South Korea Moves to Tackle Inflows

South Korea will impose a financial institution levy on overseas-foreign money debt in its newest transfer to reduce currency volatility amid surging capital flows into Asia’s fourth-largest economy.
The levy shall be imposed on non-deposit international-foreign money liabilities held by home and international banks, with the next fee levied for short-time period debt than longer-term debt. A invoice might be submitted to parliament in February for revisions of associated laws to implement it in the second half of next year.
The transfer follows the country’s recent measures to curb the gained’s sharp appreciation, resembling re-imposing a withholding tax on international traders’ earnings from authorities bonds and limiting banks’ foreign exchange forward positions.
A variety of growing international locations comparable to Brazil, Indonesia and Thailand have more and more turned to capital controls to protect themselves from speculative capital inflows, sparked by ultra-low interest rates in advanced economies.
More international locations are anticipated to take related measures after leaders of the Group of 20 main economies agreed last month that countries experiencing currency volatility could undertake “macro prudential” measures.
“We'd like measures to cope with rapid capital flows, which may cause systemic risks to the economic system,” Seoul’s finance ministry said.
Capital flows into creating countries, searching for increased yields, have accelerated in recent months, fanning considerations that their export competitiveness could be weakened by stronger currencies. The Korean won has appreciated greater than 30 per cent in opposition to the dollar since February last 12 months, essentially the most in Asia.
The government has but to set the charges of the levy but banks will in all probability be required to pay it in US dollars.
The federal government mentioned the levy would strengthen its potential to deal with future crises as it may use the money to supply banks with overseas forex liquidity. Non-deposit overseas-currency debts at local banks totaled $168.9bn as of October while local branches of foreign banks held a mixed $104.6bn in such liabilities.
The federal government stated it might closely monitor capital flows and will study further measures, if needed. It announced in June plans to put a ceiling on banks’ forex ahead positions and the parliament just lately passed a invoice to revive a 14 per cent tax on foreigners’ earnings from treasury investment.