There is growing talk of the need to internationalize the Korean won in line with the country`s enhanced global economic status.

Experts discussed the issue in a recent forum in Seoul, offering their views on what Korea needs to do to make the won an internationally used currency.

The challenges include boosting the size of the economy, stabilizing the inflation rate and raising the value of the currency, they said.

"Korea`s GDP is still small compared to those countries whose currencies are much more internationalized including China and Japan," said Baek Seung-gwan, a professor at Hongik University, at a forum in Seoul.

"Relatively high inflation rates and volatility of the currency should be addressed as well," he said.



His view was shared with Oh Yong-hyup, director of the International Macroeconomics and Finance team of the Korea Institute for International Economic Policy.

Their comments came after lawmaker Kim Young-sun, chairwoman of the governing Grand National Party`s National Policy Committee, stressed that Korea should not miss the critical timing of 2010 to encourage a wider international use of the won in the Asian market, as Korea, China and Japan and the 10 members of the Association of the Southeast Asian Nations agreed to launch a $120 billion currency swap program on March 24.

"The combined size of the foreign exchange reserves of Korea, China and Japan exceeds $3 trillion. This means that the United States and Europe would need China and Japan`s cooperation in stabilizing the global financial market," Kim said.

"Korea has the opportunity to upgrade the won`s global status as a host country of the G20 2010 Summit," she said.

International use of the Korean won has been insignificant, although the nation`s share in international trade and finance has increased quickly.

According to the Triennial Central Bank Survey by the Bank for International Settlements in December, 2007, the average daily volume of the foreign exchange for the Korean won was 0.8 percent of the global foreign exchange.

A reduced foreign exchange risk at exporters is cited as the largest benefit of the internationalization of the won, as exporters will be able to pay in won without concerns about foreign exchange risks.

However, the Korean authorities are taking a cautious stance in the internationalization of the local currency, as it may create excessive inflows of speculative foreign capital, said, Lawrence H. Lee, director of the foreign exchange policy division at the Finance Ministry.

"If the won is internationalized, there will be a larger foreign currency speculation risk. We should take cautions in approaching the issue, although the authorities will maintain efforts to encourage a wider use of the Korean won in the long term," Lee said.

More importantly, Korea should check if the global market`s demand for the won is large enough to push the won`s internalization, said Oh Suk-tae, economist with SC First Bank.

(yoonmi@heraldm.com)





By Kim Yoon-mi