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The Korean government introduces a currency transaction tax on foreign funds for the stabilization of the foreign exchange market. The idea is to prevent foreign exchange fluctuation caused by advanced economies’ quantitative easing and to better manage capital flows.
Assistant Minister for International Affairs Choi Jong-koo of the Ministry of Strategy and Finance announced that the ministry brings in a bond transaction tax to that end. Although it is somewhat different from Tobin’s Tax for uniform taxation on all short-term speculative funds, the ministry is going to come up with a type of currency transaction tax allowing for domestic market conditions.
“The bond transaction tax might have some problems concerning market contraction and effectiveness, but it’s necessary to have some related discussions while monitoring the recent introduction of a bond transaction tax by the European Union,” he said, continuing, “Given that the speculative demand takes the form of forward trading in most cases, we’ll also decrease the room for banks’ forward trading to forestall speculative trading in the non-deliverable forward (NDF) market.”
At the same time, the government is planning to make it compulsory to use the Central Counter Party (CCP) in NDF transactions and reflect the NDF transaction volume to forward position estimation. The purpose is to secure offshore market trading information and prevent speculative investment.