[EDITORIALS]Intervention is not the answerThe value of the Korean won continues to climb against the dollar. In mid-October, one dollar was valued at 1,150 won, but the Korean currency has appreciated so much in the last two weeks that one dollar is now worth 1,110 won.
Industry is concerned about the impact on exports. When the Korean currency appreciates, the cost of Korean exports rises in dollar terms and they become less competitive. In addition, the proceeds from exports decline in won terms. The government is also worried. If exports crumble at a time when domestic consumption is distressed, the economy will inevitably be depressed.
Nonetheless, the government should not intervene in the foreign exchange market to keep the value of the won down in a bid to sustain exports. If the situation worsens, the government may be more tempted to intervene, but it needs to contain itself and watch where the international economy is heading.
Until now, the government has kept the won’s value low to maintain Korean exports’ competitiveness. The economy remained intact despite the contraction in domestic consumption this year, thanks to the exchange rate policy. Now, things have changed. It is not only the won that is strengthening against the dollar but also all other major currencies. With international crude oil prices continuing to rise and the U.S. current account deficit growing, the depreciation of the U.S. currency is inevitable at present. President Bush seems to acknowledge the weakening of the dollar.
Under such circumstances, we cannot attempt to hold back the won’s value when other countries let their currencies appreciate. Going against the flow, intervention would not only be difficult but would create much bigger problems. We already have an open market economy and variable exchange rate. The government’s exchange rate policy should not go beyond protecting our currency against speculators and easing exchange rate fluctuations. The government can temporarily intervene to prevent disorder in the currency market, but it should not do so as part of economic policy.
On this occasion, exporters should rethink their export strategies. Their competitiveness in exports will be limited if they continue to rely on the exchange rate. Quality and technology are the only way to offset a strengthening won.