Seo Yeong-kyung “Weakening the stabilization of the trade balance exchange rate … strengthening the path of capital movement”

The impact of the weakening of the Won price is growing … Concern about a sudden drop in capital inflows is low

(Seoul = Yonhap Infomax) Reporter Jinwoo Oh = Seo Young-gyeong, a member of the Monetary Policy Committee of the Bank of Korea, analyzed that structural factors in the Korean economy weakened the path of automatic exchange rate stabilization through the trade balance, but strengthened the path through capital transfer.

Commissioner Seo also diagnosed that although the pass-through effect of the devaluation of the money earned has become greater than in the past, concerns about a sudden drop in capital inflows are not great.

At the ‘BOK International Conference’ held at the main building of the Bank of Korea in Sogong-dong, Jung-gu on the 2nd, Seo said, “The won-dollar exchange rate has shown weakness and increased volatility since last year due to factors global. and factors specific to Korea (decline in trade surplus, increase in foreign investment).” it was claimed like this.

He said, “The background of the weak gains is not only economic factors but also structural changes (intense competition with China, an aging population, and greater demand for foreign investment from businesses and households).” Rated prospective.

Before the start of the 2020 pandemic, the dollar won exchange rate was trading mostly in the 1,100 won range.

Commissioner Suh believed that such a structural change in the Korean economy automatically weakens the exchange rate stabilization path through the trade balance.

“Even if the winner depreciates due to the expansion of export and import prices in dollars and the high dependence on the import of intermediate goods and energy, the effect of increasing exports and decreasing imports is not significant,” he added.

In other words, when the dollar-earning rises, the cyclical link that the earning strengthens again due to the expansion of the trade surplus has weakened.

Instead, Commissioner Seo saw that the path to stabilizing exchange rates through capital transfers had been strengthened.

“The fact that the outflow of foreign stock investment has decreased since last year and the inflow of dividends from foreign investments has increased since the related review of the law at the end of last year relieves the pressure of the depreciation of the money earned,” he said. . which is necessary to improve the economic and financial conditions, such as improving the conditions for returning dividends from foreign direct investment and expanding the incentives for foreign investors to invest in domestic securities,” he stressed.

Commissioner Seo then expressed concern, saying that the effect of the winner’s depreciation on prices was greater than in the past.

“Given that the price pass-through effect of earnings depreciation was caused by overlapping demand and supply shocks, it is estimated to have become greater than in the past,” he said.

However, the possibility of shocks such as a sudden drop in capital inflows due to the depreciation of the money earned was considered to be small.

Commissioner Seo added, “This is because the currency mismatch problem in our economy has been greatly alleviated thanks to the reduction in short-term foreign debt in the banking sector and the increase in external assets in the private sector since the global financial crisis. “

He said, “As long-term foreign debt has recently increased due to the expansion of foreign domestic bond investment, there are concerns (sin redux original sin) that these funds are vulnerable to earned depreciation and widening interest rate differentials. It doesn’t look too big,” he added.

Seo Yeong-kyung, member of the Bank of Korea’s Monetary Policy Committee
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This article was submitted at 11:00, 2 hours earlier on the Infomax financial information terminal.

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