One Dollar Equals 1105 Won

With the won-dollar exchange rate dropping (with the Korean currency`s value rising versus the dollar), the currency, which used to remain at 1,110 won, has been collapsing in 50 months. The stock exchange rate and interest rate also fell with the exchange rate drop.

As a result, the growth pace on Korea’s exporting momentum, which has slowed down in the second half of the year, has emerged into an emergency situation.

On November 8, the won-dollar exchange rate for the Korean exchange market closed at 1105.3 won, falling 5.30 won from last weekend.

The closing price on this day reached the lowest point since the foreign exchange crisis on September 4, 2000 (1104.4 won).

With the exception of the temporary rise of the won-dollar exchange rate for three consecutive days after President George W. Bush’s reelection, the exchange rate per dollar has dropped nearly 40 won for thirteen consecutive business days since October 20.

The weakening of the dollar attributes to the outlook that the U.S will continue with its “weak dollar policy” in order to relieve its financial and trade deficits.

Goo Gil-mo, manager of the Korean Exchange Bank Exchange management team said, “Under the basis of the weak dollar, many companies have released the dollars that they had received as an export account and the exchange rate fell as a result.” He also added, “Since there is not much demand for the dollar, a continued drop is expected.”

A high-ranking official for the Ministry of Finance and Economy implied that they will not attempt an immediate intervention by saying, “The weakening of the dollar is a global phenomenon and it will only cause a side effect if an artificial intervention takes place.”

As investment sentiments dampened due to the drop of the exchange rate, the Korea Composite Stock Price Index closed at 846.11, which is 14.57 points lower (1.69 percent) than it was last weekend.

Also in the bond market, the earning rate for the Korean treasury bonds of three-year maturation, which acts as a standard interest rate, dropped 0.05 percent from last weekend as the expectations for a drop in the interest rate increased.

The dollar is weakening altogether around the global market including a decrease in value versus the Japanese Yen and the Euro.

The Financial Times reported on this day, “Countries such as China, India and Russia which were proceeding with the purchase of U.S. assets have recently been selling dollar assets,” and added, “The value of the dollar will continue to drop due to the governments of various countries’ selling such dollar assets.”

On the other hand, the export industries are concerned about the deterioration of the profitability as well as a decrease in export due to the sudden drop in the exchange rate.

The Federation of Korean Industries estimated in its report titled, “The Fluctuation of the Dollar and its Countermeasure,” by saying, “If the won-dollar exchange rate drops below 1100 won, then the export for next year will decrease about $10 billion, which is a decrease of 4.2 percent from this year’s export.”

According to a survey on 321 export companies conducted by the Korean Chamber of Commerce and Industry on this day, 68.2% of the responding industries said that the strong won “will continue.”