The Government is seeking ‘exchange rate protection’ by attracting private foreign financial assets to Korea

The government is considering ways to attract private investment in foreign financial assets to Korea to calm the sharp rise in the exchange rate. Just as the government releases foreign exchange reserves when the exchange rate increases, bringing private foreign assets into Korea can be used to stabilize the foreign exchange market. The government’s calculation is that there is enough incentive for investors to return their foreign assets to Korea when considering the anticipated foreign exchange earnings.

According to the Ministry of Strategy and Finance on the 3rd, the total external financial assets were $2.12 trillion (about 2973 trillion won) from the second quarter. Excluding foreign exchange reserves, about US$1.7 trillion (about 2380 trillion won) are external assets held by the private sector. Foreign financial assets owned by the private sector include foreign stocks and bonds purchased to acquire shares in foreign companies acquired for the purposes of management participation or capital gains, and various types of foreign assets owned by the Koreans, such as other trade credits or foreign deposit assets. .

The government is reviewing incentives, believing that it will help stabilize the foreign exchange market if the dollars obtained from the sale of private external financial assets of $ 1.7 trillion can be imported to Korea. There is also talk of tax incentives for investing imported foreign assets in Korea. The government believes that as the gain-dollar exchange rate rises, there is a high possibility that investors who want to realize foreign exchange profits will voluntarily sell foreign assets and invest them in Korea. I believe that if we give incentives to such a situation, the sale of foreign assets will not be implemented. Since 2015, the government has promoted various measures to stimulate foreign investment, including tax-free foreign reserves. Net external financial assets (external assets minus external liabilities) increased rapidly from minus 97.7 billion dollars at the end of 2012 to 744.1 billion dollars in the second quarter of this year. Excluding foreign exchange reserves ($436.4 billion) at the end of August, approximately $300 billion in net financial assets were held by the private sector. An official from the Ministry of Strategy and Finance said, “The reason the government has increased private external assets is that external assets act as a safety net during rapid exchange rate appreciation “Because I expect you to,” he said.

However, it is not clear whether the private sector will sell external financial assets in accordance with the will of the Ministry of Strategy and Finance. This is because losses in external financial assets such as foreign stocks and bonds invested by domestic investors have increased due to global tightening. Unless it is a stop loss, it is unlikely that the company will sell its external financial assets while incurring losses. According to the National Pension Service, which invests more than a quarter of its total investment in foreign stocks, the valuation of the fund’s assets was 882 trillion won at the end of June, down more than 45 trillion won in a quarter of the end from March (928 trillion won). In particular, the profit on foreign stock management recorded a loss of 12.59%. Looking at the case of the National Pension Service, known as ‘the big hand’, it is very likely that the situation of other institutional and individual investors will be similar or worse. A high-ranking official in the financial sector said, “Among net external assets, most of the areas that can be considered for incentives to recover them will be foreign stock investments. Ha Jun-kyung, an economics professor at Hanyang University, said, “Tax benefits may have a small effect, such as allowing the assets to be imported more quickly, but it will not be a radical measure to change the big trend.” The Ministry of Strategy and Finance said, “We are not considering a plan to give transfer tax benefits when private companies sell foreign stocks and convert them into earned ones.”