South Korea is actively working to elevate the global stature of its financial markets. Despite being a leading export nation and ranking as Asia's fourth-largest economy, the country faces hurdles due to stringent currency restrictions, which have historically deterred investors and traders. These limitations have contributed to South Korea's persistent classification as an emerging market.
Efforts are underway to make the South Korean won more accessible on the global stage, with proposed measures including extended trading hours. However, the shadow of past financial crises looms large, making regulatory bodies cautious about implementing rapid changes.
The existing foreign exchange (FX) restrictions, such as cross-border transaction limits and daily reporting mandates, are not only cumbersome but also increase operational costs for businesses. Bongju Kang, a chief financial manager, highlights the challenges faced by firms in navigating these regulations, emphasizing the potential benefits of around-the-clock FX markets for better currency conversion deals.
The so-called Korea Discount, attributed to the underperformance of local stocks on the global market, is partly blamed on these FX restrictions. Other contributing factors include poor corporate governance and decision-making within major conglomerates. Despite these challenges, regulators stress the importance of continued market surveillance to prevent destabilizing currency fluctuations.
Recent reforms, set to take effect in July, will see trading hours extended to better align with London's market, a move anticipated to attract more foreign banks to the interbank market. These changes are part of President Yoon Suk-yeol's broader initiatives aimed at eliminating the Korea Discount and enhancing investment appeal by meeting the criteria for inclusion in premier global indexes like the FTSE World Government Bond Index (WGBI, Financial) and MSCI's developed market benchmarks.
Despite these efforts, analysts and market participants remain skeptical about the immediate impact on won trade accessibility, citing limitations on international banks' participation and the absence of plans for an offshore market.
With a daily trading volume of $66 billion, the won's global forex presence is modest compared to other currencies. However, experts believe there is potential for growth if regulatory barriers are eased, allowing the won to compete more effectively on the global stage.
The focus on stringent market surveillance is a legacy of past financial crises, with current regulations allowing the Bank of Korea (BOK, Financial) to monitor all dollar-won transactions closely. These measures, while unique, reflect a cautious approach to market opening, ensuring controlled participation in won trading.
