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Korea Curbing Capital Inflows
Source: koreaherald.com
Source Date: Friday, November 05, 2010
Focus: Institution and HR Management
Country: Korea (Republic of)
Created: Nov 08, 2010

Korea’s financial authorities are stepping up actions to curb capital inflows after the U.S. Federal Reserve announced it would print $600 billion to boost its economy.

The U.S. quantitative easing rang alarms in Asia and emerging market countries, encouraging them to consider measures to combat excessive inflows that could destabilize their markets.

The Bank of Korea and the Financial Supervisory Service announced Friday that they will launch a seven-day joint probe on banks handling foreign exchanges starting Nov. 15.

The action is aimed at controlling market volatility and preventing the won from rising amid signs of a resurgent global currency battle.

The inquiry follows their first round of inspection of four foreign banks operating in Seoul last month.

Last month, the two authorities conducted a joint inspection of JPMorgan, Morgan Stanley, BNP Paribas and DBS Bank. The FSS probed Korea Exchange Bank.

“The probe of the four foreign banks is still going on. Several banks will be included in the list this time,” an FSS official said.

It is speculated that one or more out of the three foreign banks HSBC, Citibank Korea, Deutsche Bank will be the new target of the coming probe.

As a similar move, the FSS will also make inquiry into the foreign exchange business of Shinhan Bank when it starts a yearly on-the-spot probe of the bank on Nov. 8.

Analysts said the probe is more aimed at controlling the currency than being a normal regulatory activity as the FSS said.

“It seems that the action is designed to prevent the won from further appreciating against the dollar,” said Woori Futures analyst Byeon Ji-young.

She said the timing also tells that the action is seemingly designed to have a ripple effect on the market.

Korea has been cautious in controlling the foreign exchanges market as it chairs the Group of 20 Seoul Summit, slated for Nov. 11-12, which is likely to promise efforts to refrain from market intervention.

When the FSS and the BOK announced the first action on Oct. 5, the won lost value to close at 1,130.7 per dollar on the day, compared to 1,122.3 won from a day earlier.

After the second action was made public during the trading session on Nov. 5, the pace of the Korean currency’s appreciation was slowed to close at 1,107.3 won while it was trading at the 1,104.5 won level earlier in the day.

Considering the U.S. measures of printing the greenback massively to become a winner in the currency battles, he believes the action of the Korean authority is a piece of cake, a securities analyst said.

The Fed’s announcement stirred massive backlash from Asia and Latin American countries.

Thailand’s finance minister said Friday that he is willing to implement further capital controls, possibly in cooperation with other countries.

Brazil’s foreign trade secretary said the Fed’s move could cause “retaliatory measures”.
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