Abstract
With the increase in trading volume and market volatility in the global currency markets for the past decade, the Korean foreign exchange market has been experiencing significant fluctuations, adding to the instability of the overall financial market. A major contributing factor behind the volatile value of won, Korea's currency, is the government regulation that prohibits won–denominated fund transfers between non–residents, thus preventing an offshore won market from developing. This paper proposes that offshore won trades be permitted as a first step towards the internationalisation of won. Given the size of Korea's economy, stock market, and competiveness and scale of the non–financial industrial sectors, further liberalisation measures of the Korean financial market including permitting an offshore won market will contribute to a more liquid and stable currency market, and thus the overall stability of the financial market.
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