Capital Market Opinion (Ceased)
2013 Aug/13
Fundamental Challenges to Internationalization and Overseas Expansion of Korea’s Financial Industry
August 13, 2013
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Hyun, Suk
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- Summary
- The need to internationalize Korean financial firms is growing amid low interest rates and low growth in the Korean economy. But unfortunately, they are struggling to advance into global financial markets. In order to successfully raise global competitiveness and advance into the global markets, it is obvious that Korea needs to enlarge its banks and nurture large IBs. But a more fundamental approach is to renew Korea’s policy drive for internationalizing the Korean won and making the country a financial hub. This effort fizzled during the global financial crisis and needs to be revitalized. A major stumbling block to this approach is the nature of the economy: Korea is a small, open economy with high dependency on external factors and high sensitivity to foreign exchange rate fluctuation. Martin’s analysis on the correlation between country size and exchange rate volatility suggests that the Korean economy is on the threshold of currency internationalization. Going forward, Korea should prioritize reforming its exchange rate regime to reduce volatility and internationalize the won. Also important is nurturing the financial industry as a new driving force to grow the Korean economy.