Won in Appreciation Drags Exports Down

Due to the weak-dollar policy in the U.S., the won has appreciated in value against the U.S. dollar to a level which may soon affect Korea`s exports.

In a report entitled “Foreign Exchange Market Trends for 2Q in 2003“, released by the Bank of Korea (BOK) yesterday, the currency exchange rate on average in June was 1194.02 won against the dollar, a sharp drop from 1199.78 won in May and 1232.82 in April this year.

The won-dollar exchange rate has been on a steady decrease from 1290.83 won in 2001 to 1251.24 in 2002, and to 1201.11 in the first quarter in 2003.

According to the BOK, the won`s appreciation in May through June stems from the devaluation of the dollar, influx of foreign investment capital into Korea, and a strong yen.

“The world is engaged in a foreign exchange war since the U.S. employs a weak dollar policy and so do Japan and the EU,” said Byun Jae-young, head of the foreign exchange department at BOK. He also said that a “stable foreign exchange rate is one of the most important things to export-oriented Korea.”

In the meantime, off-shore forward trading stood at 860 million dollars in volume in the second quarter this year, a decline by 22.5% or 250 million dollars compared with the previous quarter.

This was explained by the fact those who wished profit on foreign exchange reduced off-shore transaction in the market as various uncertainty factors cleared up.

Foreign currency transaction volumes between banks has also shrunk to 3.39 billion dollars a day, slashed by 180 million dollars from 3.58 billion dollars a quarter before.

Daily fluctuation gap in the won-dollar exchange on a daily basis was 4.1 won to the dollar, similar to 4.5 won in the first quarter this year.

Regarding daily currency fluctuations of major countries against the USD, the Japanese yen and euro showed high sways to post 0.42% and 0.56% respectively while the Thai baht and Taiwanese dollar marked a meager 0.17% and 0.12% respectively. The Korean won swung by 0.34%.

Kwu-Jin Lim mhjh22@donga.com