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Won-Dollar Exchange Rate Drops Again

Posted December. 07, 2006 07:04,   


The exchange rate of the won against the U.S. dollar has fallen to 910 won range for the first time in nine years and one month.

As the exchange rate has continued to fall sharply recently, alarming voices are spreading that the rate could plunge below the 900 won mark.

A dramatic fall in the foreign exchange rate could undermine the price competitiveness of Korean products in the overseas market, putting a significant burden on the Korean economy, which has recently accomplished $300 billion in annual export. Korean exporters are already on emergency alert.

On December 6, at the Seoul Foreign Exchange Market, the won-dollar exchange rate has fallen six days in a row (on trading day basis), closing at 916.4 won, down 7.9 won from the previous day.

This is the first time the won-dollar exchange rate has fallen below 920 won since October 22, 1997, when the rate stood at 915.1 won. For the past six days, the exchange rate has dropped as much as 14.4 won or 1.55 percent.

The won-yen exchange rate has also went down by 1.05 won from the previous day to 799.83 won against 100 yen, crumbling the 800 won mark.

Decreased foreign exchange rates can help bring stability to the economy by lowering the price of the imported goods and make overseas travel cheaper, but according to economic experts, it will have much larger negative effects on the national economy as a whole.

As concerns grow over the prospect that the won appreciation could worsen export and the economy, stock prices as well as the interest rate of bonds have also went down.

On the same day, the KOSPI fell 6.86 points or 0.48 percent, closing at 1,413.73, and the interest rate of 3-year national treasury bonds dropped 0.04 percent from the previous day to 4.73 percent per year.

Meanwhile, one senior official of the Ministry of Finance and Economy said, “The foreign exchange authorities will take measures to stabilize the exchange rate at any time if deemed necessary, and we have plenty of “ammunition” (foreign currency), hinting for the possibility of government intervention in the foreign exchange market.

jinhup@donga.com ssoo@donga.com