[EDITORIALS]Anxiety over the exchange rate

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[EDITORIALS]Anxiety over the exchange rate

The value of the U.S. dollar against the Korean won temporarily fell below 1,000 won yesterday. The aftermath was felt on the Korean stock market, where share prices nose-dived, and in the overseas currency market, where the dollar experienced a significant drop. Turbulence was created in both domestic and international financial markets.
The fluctuation in the foreign exchange rate was caused by a wire service dispatch about the Bank of Korea’s report to the National Assembly that the central bank would diversify its foreign exchange reserves, which have swollen past $200 billion, with assets other than U.S. dollars. Against the backdrop of a globally weak dollar, Korea’s export growth and rising influx of foreign investment have greatly increased the flow of dollars into Korea’s financial market, which in turn brought international pressure to revaluate the won.
Finally, foreign exchange authorities made a hurried intervention into the market and tried to mitigate the shock caused by the report. Consequently, the plummeting won-dollar rate has slowed.
Considering the current market situation, the fall in the exchange rate was inevitable in some respects. But this was excessive. Rapidly fluctuating exchange rates will hurt the stability of businesses, and could amplify anxiety both within and outside of our economy.
In this sense, we think it was necessary for the foreign exchange authorities to intervene in the market. But excessive intervention, going beyond the purpose of controlling abnormal fluctuations in the exchange rates to keep exports competitive, should be avoided. Artificial intervention has only limited effects, and is not desirable either. A strengthened won will have a negative effect on export competitiveness, but it will also have the benefits of reviving domestic consumption, boosting business investment and stabilizing prices.
Because the exchange rate turbulence was sparked by the Bank of Korea’s report, it had the negative effect of shaking the financial market. It was also a reflection of the fact that the status of the Korean economy has been upgraded. It is necessary for our foreign exchange authorities to implement a policy that suits Korea’s upgraded status and its expanded influence. A more discreet and refined foreign exchange policy is needed now.
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