Democratic Party Pushes for Local Currency Act Amid Financial Concerns

The Democratic Party of Korea has announced plans to introduce the Local Currency Act (Local Love Gift Certificate Utilization Activation Act) at the National Assembly plenary session. The proposed legislation aims to make it mandatory for the central government to provide financial support for the issuance of local love gift certificates by local governments, which is currently at their discretion.

The Moon Jae-in government previously increased the budget for local currency from 10 billion won in 2018 to 1.2522 trillion won in 2021. The Democratic Party claims that this move will “invigorate small businesses.” However, critics argue that it places a significant burden on finances, has unclear effects, and raises concerns about illegal distribution.

According to the Korea Institute of Public Finance, local currency that can be used in specific regions may cause a decrease in sales of nearby retail stores, resulting in a “zero-sum” outcome. Furthermore, if local governments expand the issuance of local currency due to mandatory central government support, printing and distribution costs could reach hundreds of billions of won. This may exacerbate the issue of illegal cashing, known as “kkang,” and disrupt the market.

The fiscal situation in Korea is already challenging, with a deficit in the management fiscal balance exceeding 100 trillion won in the first half of the year. The tax shortfall is expected to exceed 30 trillion won this year, and the national debt is increasing. Implementing the Local Currency Act could worsen the financial situation.

Critics argue that the Democratic Party’s push for the Local Currency Act is a form of populism that could harm the country’s financial stability. Instead, they suggest that the party should focus on legislating to stabilize the fiscal situation. This could involve cooperating with the legislative implementation of fiscal rules, which Korea and Turkey are among the few OECD countries that have not adopted.