South Korean won trade faces turning point
Since the Asian Financial Crisis, South Korea has pursued a delicate balance between openness and stability in its domestic financial markets. In January, South Korea’s Ministry of Economy and Finance announced it was considering reforms that would extend the trading hours of the South Korean won and allow international traders to participate in the market, constituting at least a partial reversal of the ban on offshore trading. South Korea has been granted developed country status in all major international economic organisations and other financial indexes, but has consistently fallen short of MSCI’s high market accessibility criteria. Though the move is not enough to upgrade Korea’s classification, liberalising trade of the South Korean won constitutes a major step in that direction.
Trading hours are currently open from 9am to 3:30pm, Korean Standard Time. But South Korean government officials have not been as vocal about other issues blocking its MSCI ambitions. Should South Korea eventually overcome these obstacles, there are some predictions regarding how increased capital flows associated with elevated MSCI status might benefit domestic financial markets. But there are areas of concern for South Korea should MSCI upgrade it, especially due to the reforms needed to get there.
While it appears that trade in the South Korean won will be liberalised soon, this cannot happen immediately. President Yoon Seok-yeol did not promote a policy of meeting developed country criteria in his campaign, unlike his competitor Lee Jae-myung. Kyle Ferrier is Fellow and Director of Academic Affairs at the Korea Economic Institute of America.
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