The Recent Liberalization of Korea's Foreign Exchange Markets, and Tests of U.S. versus Japanese Influence

Abstract

Financial liberalization is a good thing for Korea, so long as proper SEC-type regulation is maintained. However, the beneficial implications for U.S. "competitiveness" of Asian liberalization in the area of exchange rate policy are less clear than one would infer from observing the amount of U.S. pressure applied. It is misguided for Americans to appeal to free-market principles to justify pressure on Asian countries to allow their currencies to appreciate against the doll oar. American negotiators would perhaps be better advised to concentrate on negotiating the liberalization of trade in goods and services, the liberalization of which could benefit both countries. It is ironic, that U.S. government pressure on Korea to liberalize its financial markets and loosen its link with the dollar has resulted in a greater role for the yen and Japanese interest rates in Korea.