Bank of Korea Governor Kim Choong Soo called for global cooperation on reducing risks posed by central-bank easing and urged emerging countries to prepare for volatile capital flows.
“Coordinated global efforts to rein in the excessive global liquidity and cross-border spillovers have fallen short of expectations,” Kim said according to prepared remarks for a speech in Seoul today. “A global solution is needed more than ever to overcome the current crisis, which is a global problem.”
Kim’s comments follow an International Monetary Fund report on June 12 that urged South Korea to enhance contingency planning, citing its exposure to foreign money flows. Kim said today that his country’s measures such as implementing adjustable caps on banks’ foreign currency derivative positions could be a model for other countries.
U.S. Federal Reserve Chairman Ben S. Bernanke on June 7 said that policy makers will discuss whether to boost measures to support growth even as he foresees “diminishing returns,” should they pursue further easing.
South Korea has deployed a number of steps since 2010 to smooth hot money flows that often cause sharp swings in the won. The Finance Ministry capped banks’ currency forward positions and imposed a levy on non-deposit foreign-currency liabilities held by domestic and foreign banks. It also revived a tax of as much as 14 percent on interest income from treasury bonds held by foreigners, as well as a 20 percent levy on capital gains from their sale.