Political Circle Uses to Appease Public Sentiment... Joo Jin-hyung, Open Democratic Party Supreme Council Member, "Criticism of Governor Lee Goes Too Far"
Economic Academia "Only Consumption in Specific Regions Increases... Consumer Welfare Actually Decreases"
[Asia Economy Reporters Jang Se-hee and Won Dara] The controversy over the effectiveness of local currency, triggered by Gyeonggi Province Governor Lee Jae-myung's criticism of a report from the national policy research institute Korea Institute of Public Finance, shows no signs of abating. Although local government heads are increasing the issuance of local currency under the pretext of revitalizing the local economy, academia unanimously agrees that there is neither public benefit nor economic gain.
◆Political circles soothe public sentiment by revitalizing the local economy= Despite the recent controversy between the Korea Institute of Public Finance and Governor Lee, on the 17th, Kim Tae-nyeon, floor leader of the Democratic Party of Korea, announced plans to significantly expand the issuance scale of 'local love gift certificates' to 15 trillion won in next year's budget. This amount is 1.7 times larger than this year's 9 trillion won. The intention is to revive local commercial districts that have been depressed due to the novel coronavirus disease (COVID-19).
Opinions pointing out the ineffectiveness of local currency or suggesting its reduction are extremely rare in political circles. This is because local currency can be used to soothe local public sentiment or to revitalize the local economy. The fact that the People Power Party has not issued a clear stance regarding the recent local currency controversy sparked by Governor Lee is interpreted as a concern about losing merchant votes.
However, some voices in politics criticize Governor Lee's harsh criticism of the national policy research institute. On the 18th, Joo Jin-hyung, Supreme Council Member of the Open Democratic Party, appeared on KBS Radio and said, "I want to ask the reverse question: does being a national policy research institute mean they cannot make critical comments on government policies?" He added, "This report is not a highly critical one. It just questions whether the central government needs to subsidize local currency issuance. If such comments are not allowed, it means completely silencing people." Jeju Province Governor Won Hee-ryong also said, "Governor Lee Jae-myung, this time you went too far," and stated, "I hope local currency will play a role as a new alternative currency that strengthens cash flow within the region, not just a simple gift certificate."
◆Increase only in consumption within specific regions... consumer welfare decreases= Academia points out that local currency is limited to specific regions and industries, and thus has little effect on the national economy as a whole.
Hwang Sung-hyun, Professor of Economics at Incheon National University and former Director of the Korea Institute of Public Finance, said, "It is a kind of zero-sum game. If consumption occurs only in one region, neighboring regions inevitably suffer," and added, "Restrictions on usage limit consumer welfare." He emphasized, "When using national taxes, the approach should be based on national economic benefits and consumer welfare, not regionalism."
The Korea Institute of Public Finance also analyzed that local currency replaces cash that would have been used anyway and can be used instead of other gift certificates. They note that consumption that would have occurred in other regions is instead spent within the local area, so the additional consumption effect is not significant. As a result, when all regions issue local currency, social welfare in both regions decreases compared to when local currency is not issued. Kim Sang-bong, Professor of Economics at Hansung University, said, "Except for about 20% overall, local currency is concentrated in restaurants, lodging, and medical services, so only specific industries benefit," and added, "It is difficult to analyze whether local currency issuance actually leads to additional consumption."
Academia calls for precise economic effect analysis of local currency issuance. Sung Tae-yoon, Professor of Economics at Yonsei University, said, "It is a costly process similar to providing subsidies when purchasing goods and services," and added, "Since it only shifts consumption demand, it is hard to see it as beneficial to the national economy as a whole."
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