A stock ticker at Hana Bank headquarters in Seoul shows the Korean won trading at 1,506 won against the U.S. dollar during intraday trading, Wednesday. Yonhap
Even as Korea remained one of Asia’s top performers with its benchmark KOSPI smashing through the 8,000-point mark and a record current account surplus, the Korean won has remained stubbornly weak against the U.S. dollar — an unusual divergence that is puzzling investors and policymakers alike.
Ordinarily, strong exports, rising stock prices and robust external balances would support a stronger currency. Instead, the won has struggled. This year alone, the won-dollar exchange rate closed above the psychologically important 1,500-won threshold on 19 trading days, surpassing levels seen during the global financial crisis.
The won’s underlying value has weakened as well. According to the Bank for International Settlements, Korea’s real effective exchange rate index — a widely used measure of a currency’s global purchasing power — fell to 85.06 in April, the lowest level since March 2009.
The won finished onshore trading at 1,501.2 won per U.S. dollar in Seoul trading on Wednesday, 3.1 won stronger than the previous session.
The government has largely portrayed the weak won as a temporary market phenomenon, attributing it to foreign investors taking profits after the sharp rally in Korean equities. As overseas investors sell local stocks and convert proceeds back into dollars for portfolio rebalancing, demand for the U.S. currency rises.
“As foreign investors rebalance their portfolios and exchange won into dollars, dollar demand has temporarily increased, pushing up the exchange rate,” Finance Minister Koo Yun-cheol said during a Cabinet meeting Tuesday.
Geopolitical tensions in the Middle East have added to the pressure. Because Korea relies heavily on imported energy, the won is particularly vulnerable during periods of oil market instability.
But economists say those short-term factors alone cannot explain why the won’s weakness has become so persistent even amid booming exports and strong market performance. More fundamentally, they argue, the balance of money flowing in and out of Korea has shifted.
Overseas investment by Korean retail and institutional investors has surged in recent years, steadily increasing structural demand for dollars. At the same time, the money earned through exports is no longer flowing back into the domestic market as consistently as it once did, as exporters increasingly hold onto dollars or reduce currency hedging in anticipation of a persistently weak won, according to Kang Sung-jin, an economics professor at Korea University.
Source: Korea Times News
