Won nears 1,560 against dollar; fundamental solutions urged

The South Korean won has plummeted against the U.S. dollar, with the exchange rate hovering near 1,560 won per dollar. Government warnings about excessive market fluctuations have done little to calm the situation. The rising dollar rate significantly impacts ordinary citizens and domestic companies by increasing the cost of imports, a reality that cannot be taken lightly. The government must take more proactive measures to stabilize the foreign exchange market.

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The exchange rate of the won-dollar has soared to a level nearing 1,560 won per dollar.

The exchange rate saw fluctuations around 1,540 won during the week, closing at 1,539.1 won on Friday. However, in overnight trading that concluded early Saturday, the rate surged to a high of 1,561.5 won before closing at 1,559 won, a substantial increase from the weekly closing price. The recent sharp rise is attributed to several factors: the delay in U.S.-Iran peace talks, substantial sell-offs of domestic stocks by foreign investors, and the overall strength of the dollar. Foreign investors have sold off nearly 120 trillion won worth of South Korean stocks since the beginning of the year.

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The reality that high exchange rates are driving up import prices, pressuring low-income households and domestic companies, is by no means light.

Despite South Korea experiencing record-high current account surpluses, the limited conversion of dollars by exporters has created an imbalance in dollar supply and demand that remains unresolved. Without addressing these structural issues, the possibility of the exchange rate breaching the 1,600 won mark cannot be ruled out. While Deputy Prime Minister Koo Yoon-cheol acknowledged the issue of market concentration through offshore non-deliverable forward (NDF) derivative transactions and promised improvements, and vowed strict action against market manipulation and illegal trading by import-export firms, it remains uncertain if these measures will be sufficient for market stabilization.

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The government must take more active steps to stabilize the foreign exchange market.

It is crucial to note that while other currencies have also weakened against the dollar, the depreciation of the won is particularly pronounced. The won's vulnerability to external shocks is amplified by its relatively small trading volume in the international foreign exchange market. Therefore, urgent fundamental measures, such as internationalizing the won and expanding the foreign exchange market's base, are necessary. The anticipated outflow of funds for U.S. investments in the latter half of the year is also cited as a psychological pressure point for the foreign exchange market, underscoring the need for more active engagement in discussions with the U.S. regarding foreign exchange market stabilization.

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The won's depreciation is uniquely large compared to other currencies weakening against the dollar.