Concerns over Korea’s foreign exchange reserves: The DONG-A ILBO

Foreign investments worth US$16 billion fled the Korean stock market in 2022 according to Bloomberg News on July 17. This is the third largest exodus of foreign capital after Taiwan and India among emerging Asian states (excluding China). Global investors are leaving Asia, which is vulnerable to the exchange rate as the US dollar hits a 20-year high. The capital flight has already started even before the reversal of the benchmark interest rate between Korea and the United States

Also dubbed “super dollar” or “king dollar”, the US currency has been valued at an unusually high level in recent days. Investors are flocking to the U.S. dollar, one of the safest assets in the world, as the U.S. Federal Reserve steps up its interest rate hike to battle global inflation and economic recession. The value of the Korean won has fallen by more than 9% in 2022, the European euro by 11% and the Japanese yen by 17%, respectively. With the exception of the United States, the world is suffering a double whammy of inflation due to soaring import prices and capital flight.

Inadequate countermeasures proposed by the Korean government include tax exemption for foreigners investing in government bonds. This is far from enough to set back foreign investors in late following big key states such as the United States, United Kingdom, Germany and France, which have already taken such measures.

Korean Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said in a foreign press interview on Monday that capital flight is not triggered by a single factor such as the gap interest rates. The vice minister may have wanted to point out Korea’s sound economic fundamentals, but the nation is facing a harsh reality. First of all, the record trade deficit that we experienced in the first half of the year must be corrected. It is equally important to take the first steps towards signing a currency swap contract with the United States at the Korea-US finance ministers’ meeting scheduled in Seoul on Tuesday. With the imminent reversal of benchmark interest rates, the Korean government and the Bank of Korea must take all possible measures.