More External Financial Assets than Liabilities in Korean Private Sector: What it Tells Us
4 Pages Posted: 16 Aug 2021
Date Written: April 15, 2021
Recently, Korea's net international investment position (NIIP) ‒ defined as the difference between an economy’s external financial assets and liabilities - is improving significantly. The positive NIIP is expanding, and in particular, the NIIP in the private sector has turned to positive. These structural changes have several important significances for the Korean economy. First, the risk of foreign exchange (FX) market instability and currency crisis has been reduced and the burden of market intervention by policy authorities to stabilize the FX market can be eased compared to when NIIP was negative. Second, in terms of financial risk management, the importance of external financial assets has increased significantly. Lastly, the growing NIIP reflects how the globalization of Korean financial companies is progressing, and the conditions for internationalization of the Korean won are improving. Therefore, Korean policy authorities should pursue a financial policy direction in terms of macroprudential policy measures, financial market stability, and internationalization, in line with the structural changes.
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