Internationalization of the Korean Won in the Light of the RMB Internationalization

272 Pages Posted: 31 Aug 2022

See all articles by Hyo Sang Kim

Hyo Sang Kim

Korea Institute for International Economic Policy

Yunjong Wang

Korea Institute for International Economic Policy

Young SIk Jeong

Korea Institute for International Economic Policy

Liqing Zhang

Central University of Finance and Economics (CUFE)

Chengjun Zhou

The People's Bank of China (PBC)

Soojoong Nam

Kongju National University

Jiyoung Moon

Korea Institute for International Economic Policy

Chang Sik Kim

Sungkyunkwan University

Sunghyun Henry Kim

Sungkyunkwan University - Department of Economics

Jiyoun An

Kyung Hee University

Soyoung Kim

Seoul National University

Dayoung Yang

Korea Institute for International Economic Policy

Date Written: February 25, 2022

Abstract

Despite the fact that China and the United States represent the G2 in terms of economic size, the RMB’s international significance in the existing international financial system is limited. China has made significant progress in encouraging RMB internationalization. It has the ability to disrupt the global financial system, dominated by the US dollar. In order to seize chances under such circumstance, Korea must find a new direction for the internationalization of Korean Won.

This collective volume has seven independent papers that investigate the current and future status of the RMB internationalization and its impacts and implications on Korean economy. The summarizations of each paper are as follows: Chapter One explains the background and motivation of this collective volume. Also, it describes the current status of the Korean Won Internationalization. Chapter Two provides detailed descriptions of the current status of RMB internationalization and its future prospects. Chapter Three examines the performance of Shanghai and Seoul RMB-KRW direct foreign exchange markets and figures that such direct FX markets have not been fully developed yet. However, such markets are expected to become more efficient gradually. Chapter Four finds that in the gradual evolution of the RMB internationalization, the KRW is becoming more synchronized with the Chinese yuan. Chapter Five explores the factors for coupling between the RMB and the KRW. Not only trade and finance channels but also policy implementations are important. Chapter Six develops the index for the KRW internationalization in light of the RMB internationalization. This chapter finds that the RMB internationalization may hinder the KRW internationalization. If the Korean government continues to delay the KRW internationalization, the benefit from the currency internationalization will become smaller. In that regard, Chapter Seven emphasizes that at this moment, it is very meaningful to re-examine the long-term strategy for Korea’s won internationalization.

The internationalization of the Korean won provides a new opportunity for the country’s financial development, rather than a disruption to the current global financial system. In the process of the internationalization of RMB and KRW, China and Korea should further strengthen bilateral financial and economic cooperation to push forward the process of RMB and KRW internationalization. Because the RMB or the KRW each have such a small proportion of the global monetary system, it is premature to be concerned about competition. Cooperation should take priority. The key policy suggestions for cooperation between these two currency internationalizations could at the very least include: (1) increasing the bilateral currency swap lines (BSLs) and making them more effective; (2) encouraging more usage of RMB and KRW in bilateral trade and direct investment; (3) encouraging more Chinese investors to hold KRW denominated assets and so does the other party; (4) accelerating the development of offshore RMB market in Seoul while having increasingly important offshore KRW market in China; (5) strengthening the coordination and cooperation in exchange rate policies.

Keywords: Currency Internationalization, China, Korea

Suggested Citation

Kim, Hyo Sang and Wang, Yunjong and Jeong, Young SIk and Zhang, Liqing and Zhou, Chengjun and Nam, Soojoong and Moon, Jiyoung and Kim, Chang Sik and Kim, Sunghyun Henry and An, Jiyoun and Kim, Soyoung and Yang, Dayoung, Internationalization of the Korean Won in the Light of the RMB Internationalization (February 25, 2022). KIEP Research Paper, Policy Analysis 21-01, Available at SSRN: https://ssrn.com/abstract=4204407 or http://dx.doi.org/10.2139/ssrn.4204407

Hyo Sang Kim (Contact Author)

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Yunjong Wang

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Young SIk Jeong

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Liqing Zhang

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Chengjun Zhou

The People's Bank of China (PBC) ( email )

No.32 Chengfang Street
Xi Cheng, Beijing 100800
China

Soojoong Nam

Kongju National University ( email )

527 Yesan
340-800 Choongnam
Korea

Jiyoung Moon

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Chang Sik Kim

Sungkyunkwan University

25-2 Sungkyunkwan-ro, Jongno-gu
Seoul, 03063
Korea, Republic of (South Korea)

Sunghyun Henry Kim

Sungkyunkwan University - Department of Economics ( email )

110-745 Seoul
Korea

Jiyoun An

Kyung Hee University ( email )

1732 Deogyeong-daero
Giheung-gu
Yongin-si, Gyeonggi-do, Gyeonggi-Do 17104
Korea, Republic of (South Korea)

HOME PAGE: http://kic.khu.ac.kr/

Soyoung Kim

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)
+82-2-880- 2689 (Phone)

Dayoung Yang

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

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