A Legal and Policy Analysis of KRW Internationalization from the Perspective of Offshore Circulation

Purpose - Recently, the Korean government is seeking to internationalize KRW and reduce its heavy reliance on the U.S. dollar and better cope with risks from external turbulence. However, there has been too little study on this subject in comparision with its importance. The main objective of the paper is to distinguish the descrete stages of the KRW internationalization and recognize the costs and benefits of each stage. Research design, data, methodology - In order to achieve its goal, this study accomplishes a formal policy analysis based on potential factors of currency internationalization and an examination of legal practices in relation to Foreign Exchange Transaction Regulation (the Regulation). Results - This study found that securing monetary policy may not be easy under liberalized capital account for a small open economy like Korea in view of the trillema. In addition, the inherent ambiguity of the Regulation may increase the costs of KRW internationalization. Conclusions-This study revealed the negative system for the control of foreign exchange of the Korean government. The excessive regulatory restrictions on foreign exchange may hinder the process of KRW internationalization. Some legal and policy reforms are needed to improve related regulation and infrastructure.