Balance Sheet Problems and Currency Crisis in Korea

Currency and maturity mismatches are among the most important causes of the currency crisis in Korea in 2008 as they were in the 1997 crisis. This paper shows that this time, however, the seriousness of the balance sheet problems is qualitatively different from the previous crisis. Then it asks why Korea suffered from the currency crisis, and what should be done to minimize the occurrence of similar events in the future. Based on empirical test and institutional investigation, this paper argues that maintaining sound balance sheet figures, effective foreign currency liquidity regulation, and global financial safety nets are important elements to enhance financial stability.