South Korea’s government is discussing several measures to control capital flows, South Korean Vice Finance Minister Yim Jong-yong said.
“We studied several possible measures such as a Tobin tax, bank tax, leverage controls and then chose the derivatives limits in June,” Yim told reporters in Gwacheon yesterday.
“We’re now discussing all of these measures, but nothing has been decided yet,” he said.
A Tobin tax — suggested by Nobel Laureate economist James Tobin — is applied to financial transactions.
Nations from Brazil to China are striving to restrain their currencies by selling them or applying capital controls as investors seek higher-yielding emerging market assets amid near-zero US borrowing costs.
Capital flooding into Asia may lead to excessive exchange-rate moves, asset bubbles and financial instability, IMF Managing Director Dominique Strauss-Kahn said on Monday.
“We have to be very careful in approaching this issue as it can have a huge impact,” Yim said. “We also need to consider how the market will react.”
Levying taxes can be “too rigid” as it needs parliamentary approval and gives the impression that South Korea is trying to control the currency market, he said.
The won closed 0.2 percent down at 1,129.60 per dollar in Seoul yesterday, according to data compiled by Bloomberg, and has risen by 6.6 percent in the past three months. That’s the third-biggest gain in non-Japan Asia, an advance that may threaten export competitiveness.
South Korea began an audit of banks handling foreign-currency derivatives on Tuesday to clamp down on speculation. Morgan Stanley and DBS Group Holdings Ltd were among those scrutinized.
Finance chiefs of emerging economies have blamed monetary easing by advanced nations for pushing investment into their markets and stoking currency appreciation.
The US and Europe have been pressuring emerging countries to let their exchange rates appreciate to rebalance demand in the world economy.
Further measures to counter capital inflows triggered by “low” interest rates overseas are being prepared, South Korean Finance Minister Yoon Jeung-hyun said at a parliamentary audit in Seoul on Monday. The authorities will act when “herd behavior” causes sudden moves in the currency, Yoon said.
Brazil this week stepped up efforts to curb gains in the real by announcing an increase in inflow taxes. Taiwan’s central bank said in a statement released on Tuesday that it will step into the currency market when the local dollar “overshoots.”
Thailand said last week it will remove a 15 percent tax exemption for foreigners on income from domestic bonds.
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