SEOUL, Aug. 9 (Korea Bizwire) – The Korean won has gained strength in recent months but not everyone is happy about the currency’s surge in value, especially Korean businesses that rely heavily on exports.
A recent report authored by senior researcher Lee Chang-sun at the LG Economic Research Institute noted that “the strengthening Korean won is weakening the price competitiveness of export companies and their profitability.”
It is no secret that the Korean economy is heavily dependent on exports, and is easily swayed by elements such as exchange rates and other overseas financial affairs. Korean exports of goods and services accounted for 45.9 percent of its GDP in 2015.
According to the report, from June 23 to August 4 the value of the won relative to the U.S. dollar increased by 3.3 percent. Lee suggested in his analysis that the continued influx of foreign investment capital into Korean stock and bond markets has given the won strength.
The report said $3.8 billion worth of domestic stocks were purchased in July this year, and the inflow of American dollars resulted in the appreciation of the Korean currency.
The weakened relationship between the won and the Chinese yuan was also identified as a contributing factor. Earlier in June, the exchange rate stood at 180 KRW per CNY. And despite the fact that the yuan has since depreciated to 160 KRW per CNY, the won has maintained its strength.
Although Lee forecasted the possibility of the won’s depreciation from elements like a potential increase in the U.S. federal interest rate, fallout from Brexit, and China’s slowing economic growth, the shift is likely to be short-lived. On the contrary, he suggested that Korea’s massive current account surplus would further strengthen the national currency.
“Korea’s sufficient foreign exchange holdings and massive current account surplus make concerted efforts to restrain the appreciation of the won unlikely,” said Lee, with regards to the U.S. treasury department placing South Korea on its “Monitoring List” for currency manipulation. “Instead, authorities should attempt to trigger natural depreciation of the won by stimulating domestic consumption and reducing the current account surplus.”
By Kevin Lee (firstname.lastname@example.org)