KDI “There is no large-scale capital outflow even in the Ukraine crisis… The rate of exchange rate rise is limited compared to the past”
“In the mid- to long-term, inflation management and improved access to the foreign exchange market are necessary”
(Seoul = Yonhap News) Reporter Seo Dae-yeon = On the morning of the 12th, an employee shows a dollar at the counterfeiting response center of Hana Bank’s headquarters in Eulji-ro, Jung-gu, Seoul at the request of a reporter.
In the Seoul foreign exchange market, the won/dollar exchange rate opened at 1,282.5 won per dollar, up 7.2 won, and broke an intra-day high. 2022.5.12 [email protected]
(Sejong = Yonhap News) Reporter Park Won-hee = The Korea Development Institute (KDI) analyzed that the recent increase in external uncertainty raised the possibility of capital outflow and caused a rise in the exchange rate, but the impact has diminished since 2014.
Choi Woo-jin, a research fellow at the KDI Economic Prospects Office, said in a report titled ‘The Effect of External Uncertainty on the Exchange Rate and Capital Inflows and Outflows’ on the 12th, that the impact of external uncertainty has decreased since 2014, when Korea became a net foreign asset country.
Researcher Choi analyzed the extent of exchange rate rise and capital outflow by using the volatility index (VIX) of the US stock market as a proxy for external uncertainty.
According to this, when the VIX increases by 100 percentage points, the increase in the exchange rate rises by 7.9 percentage points before 2013, and the capital outflow increases by 3.0 percentage points compared to the gross domestic product (GDP).
On the other hand, from 2014, when the VIX increased by 100 percentage points, the increase in the exchange rate only increased by 2.6 percentage points. During the same period, capital outflow was not statistically significant.
Research Fellow Choi said, “If you look at the relationship between the external uncertainty shock and the exchange rate and capital outflow, the increase in the exchange rate, the scale of capital outflow, and the slope of the curve have softened since 2014. “Even in a situation where global uncertainties such as the trade dispute between China and the COVID-19 crisis have greatly increased, there has been no large-scale capital outflow,” he said.
He explained that when the net external capital outflow is divided into direct investment (FDI), portfolio (securities) investment including stocks and bonds, and other investment including the banking sector, the amount of capital outflow has decreased especially in foreign portfolio investment, he explained.
It is analyzed that this was influenced by the expansion of foreign investment in domestic bonds.
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Regarding the recent situation in the domestic financial market, he said, “There is also a positive evaluation of the stability of the Korean capital market in that large-scale foreign capital outflows like in the past did not occur during the recent global crisis.”
Research Fellow Choi said, “On a quarterly basis, foreign capital has continued to flow in net inflows, mainly bonds, since the first quarter of 2020, when the Corona 19 crisis occurred.” There are also opinions that the rate of exchange rate appreciation is not large compared to the past.”
On March 20, 2020, when uncertainty peaked due to the COVID-19 crisis, the won/dollar exchange rate rose 7.5% from the previous 30 days, which was less than the 25.4% increase on October 27, 2008 (compared to the 30th day before), the peak of the global financial crisis. .
Since mid-February of last year, when Russia invaded Ukraine, stock funds have outflowed net, but bond funds have maintained a net inflow.
Research Fellow Choi mentioned the relatively low inflation (inflation), lower national debt compared to other countries, and the international competitiveness of domestic information and communications technology (ICT) companies as the background to lessening the impact of external uncertainty shocks.
The improvement of the investment environment was also cited as the background, as the amount of Korean government bonds included in other countries’ foreign exchange reserves stood at $81 billion as of the end of 2020, which is a significant level in currencies other than the US dollar.
Research Fellow Choi “In order to maintain external soundness, in the short term, it is necessary to closely monitor exchange rates and capital outflows and prepare for sudden financial market instability.” In this regard, we must continue our efforts to strengthen the international competitiveness of companies and improve access to the foreign exchange market,” he said.
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2022/05/12 12:04 Send