The government, with a long-term perspective, released a three-phase plan to increase the amount of foreign currency savings and assure the safety of them. The plan has three phases based on the development of the domestic financial market. As the increase of foreign currency savings hinge on the eagerness of domestic banks, the government will focus on providing them with incentives and direction.
For the first phase, due to the current level of high foreign exchange volatility and interest rate spread, the government should provide stronger incentives. The government will provide leading banks in foreign currency savings with a reduced macroprudential stability levy* by revising the method of calculating it. In addition, 50 percent of the levy collected will be deposited in those banks.
* A tax on banks’ non-deposit foreign borrowing introduced in September 2011, which imposes different rates from 2 to 20 basis points based on different contract periods.
During the first phase, people are not expected to save much in foreign currencies due to concerns over the losses that might be incurred by foreign exchange rate changes or a changing interest rate spread. Therefore, it is necessary to invite non residents, such as Koreans with foreign nationality or those staying overseas for different purposes, to save in local banks. Non residents will receive income tax exemption for the interest earned from their savings, as they do for yields from bonds denominated in foreign currencies. Foreign branches of local banks will be evaluated with revised performance indicators which will include their level of foreign currency savings.
To prepare for the second phase, the government will support exemplary banks in building the Global Cash Management Service, a fund management system with one head account, which allows all of the surpluses and deficits of each branch to be managed through the account.
In the second phase, the government will introduce measures to increase prudence related to foreign currency savings, while maintaining incentives. The increase of the macroprudential stability levy will be considered in this phase.
In the third phase, when the domestic foreign exchange markets are expected to be stable with little interest rate spread, there will be measures to increase macroprudential stability, and foreign exchange regulations related to foreign currency savings will be greatly eased. The government will work to achieve 10 percent of foreign currency savings of the total savings and to increase long-term savings.
The joint vice ministerial committee of the Ministry of Strategy and Finance, the Financial Services Commission, the Bank of Korea and the Financial Supervisory Service will regularly examine the implementation of the plan, address problems and have detailed discussions.
* Source : Ministry of Strategy and Finance
