This study examines Korea’s banking and foreign exchange policies in the process of financial internationalization, and pursues means of improving these policies.
As the opening of financial and capital market accelerates, and the integration of domestic and international financial markets proceeds rapidly, the scale of policy loans has decreased and the role of interest rate in the monetary supply has gained importance. Without adjustment of interest rates and exchange rates in response to changes in domestic and overseas markets, rapid movement of international speculative funds becomes inevitable, and proper distribution of funds between domestic industries encounters difficulties. Going forward, monetary policy should be converted from current countercyclical policy to pro-cyclical policy. To that end, instruments and operational objectives of monetary policy need to be expanded.
To diversify monetary policy instruments, the automatic discount system of the Bank of Korea needs to be abolished, and a quarterly ceiling for each bank (with regard to loans and discount facilities offered by the Bank of Korea) should be set. Also, the prime rate needs to be linked to rediscount rates for loans to commercial banks. Furthermore, the loans of the Bank of Korea should influence interest rates and the volume of the loan market and monetary supply. Before open market operation is applied, interbank market trading of bonds and bills should be promoted. Reserve requirement ratios need to be managed more flexibly, and the range of deposits and financial institutions subject to reserve requirement should be expanded. In addition, the gaps of interest rates between primary and secondary markets for monetary stabilization bonds need to be narrowed, their maturities must be extended, and a greater portion of monetary stabilization bonds should be replaced by government and public bonds or savings certificate issued by the central bank.
Korea’s monetary policy mainly employs the total money supply, loan increases, and a partial reserve requirement. That is, the operational targets of monetary policy need to be diversified as well. For instance, interbank market interest rates including call rates, reserve bases, reserve requirements, and loan interest rates can be utilized as operational and intermediate targets.
Moreover, foreign exchange markets should be operated so that domestic interest rates and exchanges rates are adjusted in coordination with intenational interest rates and foreign exchange rates. For smooth monetary supply control, price variables should be adjusted realistically so as to maintain interest rate parity.
Finally, in order to encourage capital liberalization and integrate domestic and overseas financial markets, it is necessary to attune domestic real interest rates toward the real interest rates on the international market. Besides drawing interest rates closer to market rates and increasing savings, reduction of investment return on real estate, and the increase of internal reserves by companies may be needed to prevent excessive demand of funds. More importantly, excessive demand for funds should be avoided by preventing excessive economic growth.
금융국제화과정에서의 한국의 금융 외환정책의 개선(Enhancement of banking and foreign exchange policies of Korea in its quest for internationalization of financial industry)
서울 : 한국개발연구원
|Series Title; No||정책연구시리즈 / 92-05|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||KDI; KDI School|