(MENAFN- Qatar News Agency) South Korea's central bank on Wednesday warned against an increase in volatility of cross-border capital movements as the prolonged economic slowdown could spark a reversal of foreign funds inflows.
A series of credit rating upgrades on Korea and quantitative easing by major central banks are helping more foreign capital flow to into Asia's fourth-largest economy, making the won appreciate more than 5% to the U.S. dollar so far this year.
The warning came as risks of a sudden reversal of foreign capital persist because any deterioration of external conditions like Europe's debt crisis could hurt the Korean economy.
The Bank of Korea (BOK) said in a semi-annual financial stability report , relayed by Yonhap news agency today that volatility of cross-border foreign capital flows could increase if the impacts of the eurozone debt woes spill into the real economy in a full swing.
"If then, Korea would face sharp deterioration in its foreign exchange soundness as short-term speculative money as well as massive long-term funds could fly out of the country," the report showed.
Korea underwent high volatility of the local currency and a sharp decline in its FX reserves at the height of the 2008 global financial crisis as foreign investors massively pulled their money out of the Seoul markets.
Mindful of risks from such capital flows, the government has taken a set of steps to smooth out cross-border capital flows since 2010, including a bank levy and tighter rules on banks' FX derivative positions.
The central bank and the financial watchdog plan to inspect banks' handling of currency forward positions from next month amid the won's ascent.
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.