Korean Job Discussion Forums

[charlieDD]

Saw on BBC this morning that the Korean government is going to launch an investigation ( yet another one of those things!) into the Bank of Korea's currency stabilization actions over the past two years, which have resulted in a loss of $18 billion.

They have been buying dollars - - - in order to sell Korean Won - - in order to devalue the Korean Won (think supply and demand). {They do this to support Korea's exports; keeping the Won's value lower helps keep Korean export prices, in dollar terms, cheaper and competitive with China's and others'. Korea is an export driven economy; exporting some $26 billion more than they import.}

The dollar all along has lost something like 20% of its value over the same period. So, they're holding dollars that are losing value. At the same time, since they issue bonds to buy the dollars, they're paying interest.

And all along, . . despite the huge investment made in keeping the Korean Won weaker, the Korean won has continued to strengthen.

So, all in all . . . it sounds like a failed policy . . while being an expensive one too.

The BBC guest analyst hinted that this failure and the pending investigation could cause the BOK to hesitate intervening further in the Korean Won's appreciation.

Oh, and one other aspect not mentioned on the BBC report that I've recently read about: Inflation in Korea is of concern; the usual way to combat it is to raise interest rates, to slow down the economy. If interest rates are raised, it could lead to fund managers wanting to put some of their money in Korean Won accounts, adding more demand for the Korean Won, thereby adding to the appreciation pressure.

One other factor: The Chinese seem ready to let their currency appreciate some 5% in the near term - - next year or so - - to cool their economy down (by making their exports more expensive and thereby reducing demand) - - and to satisfy the west ( EU and US ). This could lead to the Korean Won and other regional currencies floating up with the Chinese currency to match it.

What does it all mean for the future of the Korean won's value ? It's a game that's beyond me to call ! My bet: stronger Korean Won. (Oh, and no international ATM card to withdraw it with ! )

[bobbyhanlon]

i agree.. the path of least resistance for the won is definitely up. especially if the bank of korea is forced to abandon its policy.
i think a lot of the 'strong won' thing up to now has been more a matter of a weak dollar; those of us from britain, for example, haven't seen much benefit at all. hopefully when bush goes the u.s will get a more fiscally responsible president.
anyway, the won is most likely going up. let's hope so!

[Wrench]

Buying dollars is a bad policy.

They still haven't figured out how to control the currency. As an economics major they really need to start centralizing interest rates. Or at least start having some.

[hogwonguy1979]

haven't these people learned anything from 1997?

i bet thats why we cant get int atm cards so the money doesnt leave the country, have you seen Koreas travel deficit?

the us is pushing a weak dollar because of its trade and government deficits, korea isnt playing along

[charlieDD]