Government Subsidies for Local Currency Soar 11-Fold in 2 Years, Becoming a 'Money-Eating' Issue

Continued Controversy Over Ambiguous Regional Economic Impact

[Asia Economy Reporter Jang Sehee] As local governments have rapidly increased the issuance of local currencies in recent years, central government subsidies have also ballooned. There is growing controversy over how long government funds should continue to be投入 into local currencies, whose economic effects have not yet been definitively proven.

According to the Ministry of Economy and Finance on the 18th, government subsidies for local currency issuance increased from 88.4 billion won last year to 669 billion won this year. The government subsidy, which was only 111.3 billion won in this year's main budget, increased by 501% through four supplementary budgets. The government has allocated 1.05 trillion won for local currency subsidies next year. In this case, government subsidies for local government local currencies will have increased elevenfold in two years.

Local currencies refer to currencies restricted for use at affiliated stores within a region, such as Seoul Sarang Gift Certificates, Gyeonggi Local Currency, Gangwon Gift Certificates, and Sejong Yeominjeon. They are usually issued at a 5-10% discount compared to face value. The discount amount is covered by government and local government budgets.

In recent years, local governments have competitively increased the issuance of local currencies, and the scale of government subsidies has grown accordingly. This year, as the COVID-19 pandemic prolonged and local commercial districts stagnated, many expanded local currency policies. According to the Korea Institute of Public Finance, the scale of local currency issuance, which was 116.8 billion won in 2016, surged to 9 trillion won this year. The government expects local currency issuance of 15 trillion won next year and has prepared subsidy budgets accordingly.

Under current law, there is no legal limit on the issuance of local currencies. If this trend continues, the government's fiscal burden will inevitably increase. According to the Act on the Promotion of Use of Local Love Gift Certificates, local government heads may issue and sell local currencies by specifying a certain amount or quantity of goods and services. This means local currencies can be issued infinitely within the capacity of the respective local government.

The Korea Institute of Public Finance recently advised in its report "The Impact of Local Currency Introduction on the Local Economy" that it is necessary to review central government treasury support for local currencies. The institute analyzed that rather than treasury support, it would be preferable to unify policy support by supporting the Onnuri Gift Certificates, a similar overlapping project, or to limit support to some local governments experiencing economic difficulties.

This content was produced with the assistance of AI translation services.