Will S. Korea fall victim to global foreign exchange war?

The Bank of Korea will hold a Monetary Policy Committee meeting on Friday to decide whether to further lower or freeze the country`s benchmark interest rate. There is high interest in the upcoming meeting, which follows the international rush of cutting interest rate cuts in 27 economies around the world, including China, which lowered its benchmark rate by a quarter of a percent. The United States, which was expected to cut its key rates next month at the earliest, is showing signs of postponing the rate cut and shift toward a weaker dollar that would promote U.S. exports.

If the U.S. and China, the two axis of the world economy, join the global exchange rate war following monetary easing by Japan and the European Union early this year, the Korean won`s strength will likely accelerate, making the situation tougher for Korean exporters. If we have only the exchange rate war in mind, Seoul needs to lower its interest rate. At a time when the country`s benchmark rate is lower than 2 percent for the first time in its history, a further rate cut could increase the risks of the high household indebtedness. At the upcoming Monetary Policy Meeting, the South Korean central bank should make a decision by thoroughly weighing the pros and cons of an additional rate reduction. In any case, South Korea alone should not fall victim to the global exchange rate war.

At a forum on economic trends late last month, Bank of Korea Governor Lee Ju-yeol said that external risks such as a weaker Japanese yen and a slowing Chinese economy were recovery-limiting factors that had a "considerably negative impact" on the South Korean economy. "Economic subjects such as the political circles, the government, businesses and workers should cooperate in keeping structural reforms and macroeconomic policies in sync." Nevertheless, it is hard to understand that Finance Minister Choi Kyung-hwan belatedly told a meeting of economy-related ministers that Seoul would draw up measures after studying if South Korea`s decreasing exports were caused by a reduction in global trade or structural issues in South Korea`s exports. Early this month, he said he should finish his current job and return to politics. Does this mean that he had been turning a blind eye to changing global economic situation because he was paying attention to elections and his political future?

The reality is urgent with signs of nationalism dominating economic policies of many countries. If Lee and Choi do not have the sense of duty as chief economic and monetary policymakers, they should not forget the professionalism of doing their utmost to respond to the global economic war.