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Dev
Joined: 18 Apr 2006
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 Posted: Wed May 24, 2006 4:52 pm Post subject: Why Is The Won So High? |
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| I don't understand international economics and this question has been on my mind. The won is higher than the U.S. dollar. How is that? I hear that the U.S. economy is rocking. Are there any economics gurus on Dave's that can explain this? |
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Zolt
Joined: 18 May 2006
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| Posted: Wed May 24, 2006 5:11 pm Post subject: |
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Hey, first off, what do you mean 'higher'? It's still 900 something won to a dollar that I know. More accurately you could say, 'The won is higher relative to the US dollar than it's used to be'. That's true, but it's also been higher before.
Sorry to disillusion you but the U.S. economy is not exactly rocking. True, there are some signs of improvement, but the fear of inflation and interest rate hikes has made the stock markets more than a bit wild, and investors are turning away to invest into safer places. Korea is one of these, and there are quite a few interesting investments in here (apartment in kangnam anyone?) Not that not the least the guys pulling their money away from the US/dollar and into Korea are the korean big players.
There are probably quite a few other factors involved, including strong korean exports etc... All of these are further amplified and distorted by the vagrancies of big-money Forex trading - Note to anyone wanting to try forex trading : do yourself a favour and go to a casino instead, it'll be safer and won't have macroeconomic consequences.
This is a very simplified explanation, and probably flawed as I'm no economics guru. Finally, note that a strong currency is not necessarily a good thing for an economy... it impedes exports and discourages foreign investment, which is why Japan and China have struggled to keep their national currencies as low as possible for the past few years. Korea apparently does not have the financial resources or the will to play that game. |
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Wangja
Joined: 17 May 2004
Location: Seoul, Yongsan
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| Posted: Wed May 24, 2006 5:24 pm Post subject: |
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In addition to all that the dollar is relatively weak, and likely to weaken further, becuase of US debt, especially public debt.
BTW, if the US economy were really rocking, do you think there would be so many new graduates (and others) keen to be teachers of English in Korea? |
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ttompatz
Joined: 05 Sep 2005
Location: Kwangju, South Korea
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| Posted: Wed May 24, 2006 5:35 pm Post subject: Re: Why Is The Won So High? |
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| Dev wrote: |
| I don't understand international economics and this question has been on my mind. The won is higher than the U.S. dollar. How is that? I hear that the U.S. economy is rocking. Are there any economics gurus on Dave's that can explain this? |
The reasons the won is so high vis a vis the dollar are not that hard to understand.
It is NOT the strength of the won so much as it is the weakness of the greenback. The won is actually quite stable against other currencies like the Yen, Canadian dollar, GBP and EURO.
The greenback is in a weak position for many reasons.
The cost of the war is being paid for with borrowed money. Most of that is coming from offshore so the US treasury has to SELL dollars to offshore. This weakens the dollar.
The US has a HUGE trade deficit. They need to BUY foreign currency to pay the debt. This means selling dollars. This drops the value of the dollar.
The economy is NOT that hot. There are inflationary pressures coming to bear (rising energy costs, rising wages, supply and demand for staple goods during a war economy (like in the late Vietnam war era) for example) and pushing the cost of all that borrowing up. This weakens the dollar.
The US FED has desired to maintain a weak dollar position to stimulate domestic growth by making exports more competitive and goods imported to the US more expensive. This increases domestic production and jobs and domestically makes the economy look hot (good politics for re-election time).
A government has 2 choices for maintaining the value of a currency and strength of an economy. They can use fiscal policy (spending) or monitary policy (currency exchange).
The US government is not currently in a position to use FISCAL policy (spending to support the economy) cause they are paying for a multi-front war. There are no war bonds to actively support the extra spending required for Defense and homeland security (like during WW2) and the American people are NOT prepared to accept rationing or reduced spending to accomodate and reduce inflationary pressure and support a war footing economy.
Therefor they MUST use monitary policy to stimulate the economy and help pay for their war.
As mentioned elsewhere, a weak dollar makes imports more expensive (and reduces the trade deficit cause people don't buy as many imports) and makes exports more competitive (so the trade deficit is also reduced).
This has the added effect of increasing domestic production for the export market and reducing consumption at home (thus reducing inflationary pressures).
There is more, but I have to run back to class so I will edit this and finish econ 101 next post.
Last edited by ttompatz on Wed May 24, 2006 7:22 pm; edited 2 times in total |
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Hater Depot
Joined: 29 Mar 2005
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| Posted: Wed May 24, 2006 5:35 pm Post subject: |
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| Zolt wrote: |
| Korea apparently does not have the financial resources or the will to play that game. |
If they hadn't insisted on playing that game so long they would not have been hit as hard by the 98 crisis. They wasted precious time and resources trying to buy their way out before circumstances forced them to accept the IMF's advice and conditions. |
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Dev
Joined: 18 Apr 2006
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| Posted: Wed May 24, 2006 6:41 pm Post subject: |
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I guess I was thinking that the won is high because I am using 1000 won as being equivalent to 1 dollar. Now it's only about 900 won to buy a U.S. dollar. As a Canadian, I feel rich. Not since the early 1970's has the Canadian dollar been higher than the U.S. dollar.
I know this is flawed thinking but it looks like war is good for the U.S. economy. The war debt drives the dollar down, but that's a blessing for American businesses because American goods become cheaper for export. Imports from Japan and Eurpoe become expensive.
I heard a banker here in Korea suggest that the U.S. is making Koreans pay for the war by keeping the won high. He suspects that the Korean gov. is under pressure from Washington to keep it that way. Who knows?
The whole thing looks skewed at a glance because you have a tiny country like Korea with a more powerful currency than the world's superpower. |
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jinju
Joined: 22 Jan 2006
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| Posted: Wed May 24, 2006 7:04 pm Post subject: |
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Man oh man, I got my hopes up. The WON higher than the dollar? Damn, can you imagine 1 won to 1 dollar? Id be a millionaire in the States. |
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Bulsajo
Joined: 16 Jan 2003
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| Posted: Wed May 24, 2006 7:09 pm Post subject: Re: Why Is The Won So High? |
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| Dev wrote: |
| I hear that the U.S. economy is rocking. |
Who have you been listening to?
But yes, the Cdn economy is rocking and the Cdn dollar is at an all-time high. This is good, and yet it's not...
Last edited by Bulsajo on Wed May 24, 2006 7:11 pm; edited 1 time in total |
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Dev
Joined: 18 Apr 2006
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| Posted: Wed May 24, 2006 7:10 pm Post subject: Re: Why Is The Won So High? |
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| Bulsajo wrote: |
| Dev wrote: |
| I hear that the U.S. economy is rocking. |
Who have you been listening to? |
An American buddy who just returned home. Wishful thinking? |
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Bulsajo
Joined: 16 Jan 2003
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| Posted: Wed May 24, 2006 7:12 pm Post subject: |
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Well I guess if you believe George W, everything is just hunky dory...
[not 'you' you, but 'you' your friend perhaps] |
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ttompatz
Joined: 05 Sep 2005
Location: Kwangju, South Korea
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| Posted: Wed May 24, 2006 7:29 pm Post subject: Re: Why Is The Won So High? |
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| Bulsajo wrote: |
| Dev wrote: |
| I hear that the U.S. economy is rocking. |
Who have you been listening to?
But yes, the Cdn economy is rocking and the Cdn dollar is at an all-time high. This is good, and yet it's not... |
The Canadian economy is cooking just fine but is NOT rocking and the dollar is ONLY HIGH against the greenback. It has not changed significantly against any other major currency.
The strength of the CAD against the USD would be BAD at any other time because it makes exports to the US less competitive AND the US consumes almost 85% of the Canadian export production.
However, in the current state of the US global position, the US needs all the raw material it can get to supply their war machine and it is even better if it comes from a nice stable country like Canada. No supply side shocks to their economy. |
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TheUrbanMyth
Joined: 28 Jan 2003
Location: Retired
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| Posted: Wed May 24, 2006 7:43 pm Post subject: |
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| Dev wrote: |
| IThe whole thing looks skewed at a glance because you have a tiny country like Korea with a more powerful currency than the world's superpower. |
What? It still takes well over 900 won to buy one dollar. Korea DOES NOT have a more powerful currency than the world's superpower. And as far as I know, the Euro is the only curency that is more powerful (unit for unit that is) |
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TheUrbanMyth
Joined: 28 Jan 2003
Location: Retired
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| Posted: Wed May 24, 2006 7:45 pm Post subject: Re: Why Is The Won So High? |
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| ttompatz wrote: |
| Bulsajo wrote: |
| Dev wrote: |
| I hear that the U.S. economy is rocking. |
Who have you been listening to?
But yes, the Cdn economy is rocking and the Cdn dollar is at an all-time high. This is good, and yet it's not... |
The Canadian economy is cooking just fine but is NOT rocking and the dollar is ONLY HIGH against the greenback. It has not changed significantly against any other major currency.
The strength of the CAD against the USD would be BAD at any other time because it makes exports to the US less competitive AND the US consumes almost 85% of the Canadian export production.
However, in the current state of the US global position, the US needs all the raw material it can get to supply their war machine and it is even better if it comes from a nice stable country like Canada. No supply side shocks to their economy. |
It's not the U.S that is driving the Canadian ecomony by itself though. It's also China. China also wants as much raw material as it can to fuel its economy. That's why Canada is in a strong position at the moment...it has two giants buying up tons of their resources. |
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Wangja
Joined: 17 May 2004
Location: Seoul, Yongsan
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| Posted: Wed May 24, 2006 7:45 pm Post subject: |
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Pound Sterling?
And many in the Middle East - Kuwaiti Dinar? Bahraini Dinar? Omani Riyal? Jordanian Dinar? (and used to be the Iraqi Dinar too I think)
Canadian dollar too within 12 months ..... IMHO NIAI DYOR ..... |
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huffdaddy
Joined: 25 Nov 2005
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| Posted: Wed May 24, 2006 7:53 pm Post subject: Re: Why Is The Won So High? |
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| ttompatz wrote: |
| Dev wrote: |
| I don't understand international economics and this question has been on my mind. The won is higher than the U.S. dollar. How is that? I hear that the U.S. economy is rocking. Are there any economics gurus on Dave's that can explain this? |
The reasons the won is so high vis a vis the dollar are not that hard to understand.
It is NOT the strength of the won so much as it is the weakness of the greenback. The won is actually quite stable against other currencies like the Yen, Canadian dollar, GBP and EURO. |
err, no.
Won-US$ vs. Won-Euro
Won-US$ vs Won-GBP
Won-US$ vs. Won-JPY
notice anything? The Won has been going up against all currencies since last November.
Last edited by huffdaddy on Wed May 24, 2006 8:15 pm; edited 2 times in total |
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