South Korean president-elect Park Geun-hye Wednesday stressed the importance of currency stabilization, saying that Seoul will take action in an pre-emptive and effective manner.

"I know that currency stabilization is very important," Park said at a meeting with business figures when asked to pay attention to foreign exchange rates movement. "(The new government) will respond (to the currency moves) preemptively and effectively to prevent our companies from suffering losses."

Her comments came as strong won and weak yen fueled concerns over the weakening of price competitiveness of South Korean exporters. Since September 2012, the Japanese yen has dropped more than 17 percent against the US dollar, while the South Korean currency has gained over 3 percent versus the greenback.

Park's first remarks on currencies following the presidential election indicated that the new government, which will take office on Feb. 25, would unveil new measures to curb abrupt capital flows in and out of the country.

Modified Tobin tax

Deputy Finance Minister Choi Jong-ku said on Jan. 30 that the South Korean government was weighing taxes on bonds and currency trading to limit speculative inflow of foreign capital. Choi denied the adoption of Tobin Tax in its traditional form, but the official hinted that a modified form of Tobin Tax may come out.

The tax was devised by and named after Nobel Laureate US economist James Tobin in 1972 to reduce currency fluctuation by levying a small tax on all spot currency trading. The introduction of such taxes faced opposition in Seoul as it could cause an abrupt foreign capital exodus, but politicians from opposition parties proposed it in a modified form.

A total of 26 legislators, including 24 lawmakers from the main opposition Democratic United Party, proposed the bill in November 2012 to introduce the modified Tobin Tax with a low rate in ordinary times and a super-high rate under the crisis. The bill defined the crisis as changes of more than 3 percent in the won/ dollar exchange rate compared with the prior session.

Europe

The Tobin Tax was in the limelight after European countries showed their willingness to introduce another type of the Tobin Tax, or financial transaction tax (FTT). Eleven nations, including Germany and France, unveiled plans to adopt such tax, to which the European Commission gave its support.

In Europe, such taxes are aimed at making the financial industry share the costs of crisis that would otherwise have to be shouldered by blameless ordinary citizens. Opponents say the transaction tax may impose burdens on households and companies as it could make the financial sector more distressed, leading to weak access to credit.

President-elect Park did not include the Tobin Tax launch in her campaign pledges, but the transition committee was reported to review the introduction from a positive perspective. Cho Won-dong, named as senior presidential aide on economic affairs, has insisted on the Tobin Tax adoption.

Prompt measures

Other measures that can be taken promptly include further reduction in ceilings for currency forward positions that banks can hold. The rate for local branches of foreign banks was cut to 150 percent of equity capital last year, with the limit for domestic banks set at 30 percent.

The way of managing the ceiling on currency derivatives positions held by banks can be changed into restricting daily or weekly average positions from the current monthly basis.

Foreign borrowing by public corporations will be restricted, and monitoring on non-deliverable forward (NDF) market will be strengthened as the market has been viewed as a place for speculative currency trading.