[News Terms] 'Oepyeong Fund' Becomes Savior for Historic Tax Revenue Shortfall

The exchange equalization fund (외평기금, exchange equalization fund), which the government plans to use as a resource to cover this year's tax revenue shortfall amounting to 59 trillion won, is a fund established to stabilize the value of the Korean won and prevent turmoil in the foreign exchange market caused by speculative foreign currency inflows and outflows. Most countries operate similar types of exchange equalization funds; in the United States, it is called the 'exchange stabilization fund,' and in the United Kingdom, it is referred to as the 'exchange equalization fund.'

On the 14th, an employee is organizing dollars at the Hana Bank Counterfeit Response Center in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Korea's exchange equalization fund is divided into a foreign currency fund account and a won fund account and is established at the Bank of Korea. The required funds for the exchange equalization fund are mainly procured through deposits from the Public Fund Management Fund and the issuance of foreign currency-denominated exchange equalization fund bonds. Fund management is conducted in the form of deposits at the Bank of Korea and consignment to the Korea Investment Corporation (KIC).

Criticism that using the exchange equalization fund as a clever means to cover the tax revenue shortfall will fail to properly respond to exchange rate volatility arises because such use is inconsistent with the fund's intended purpose. When the government faces sharp fluctuations in the exchange rate, it buys or sells dollars or won directly or indirectly to stabilize the won's value, using the exchange equalization fund as the resource. If the current strong dollar trend continues, the exchange equalization fund sells the dollars it holds to buy won. This can somewhat calm the rapidly rising won-dollar exchange rate. Conversely, if the weak dollar trend intensifies, the exchange equalization fund defends against a sharp drop in the exchange rate by selling won it holds to buy dollars. The exchange equalization fund, which was about 86 trillion won in 2008, grew to 269.4 trillion won last year.

The government’s position is that, without a supplementary budget, it has no choice but to use available resources such as the exchange equalization fund to cope with the tax revenue shortfall. Specifically, it plans to utilize the surplus funds of the exchange equalization fund by early repayment to the Public Fund Management Fund, which serves as the general account. The government believes there will be no problem responding to the foreign exchange market, as it has sufficient capacity for early repayment of the exchange equalization fund and has secured a limit to issue short-term won-denominated exchange equalization bonds worth 18 trillion won next year to procure funds at a low interest rate.

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