What to do about the won

Home > Opinion > Editorials

print dictionary print

What to do about the won

The steep rise in the value of the won has begun to take a toll on Korean corporate performance. Samsung Electronics’ operating profit plunged 18 percent to 8.31 trillion won ($7.69 billion) from October through December compared to the previous three months.

Its profit fell sharply even as revenue in the final months of last year actually edged up 0.3 percent to the largest ever for a quarter.

While year-end company bonuses of 800 billion won played a part in the plummeting profit, the strong won cost Samsung 700 billion won. Even though the company sold more abroad, it earned less when the foreign currency was converted to the won. And Samsung was not alone: Kia Motors’ operating profit last year fell 9.8 percent year-on-year.

The value of the U.S. dollar fell 4.2 percent to an average of 1,061.5 won in the fourth quarter from 1,109 in the third quarter last year. The won’s rise is one the highest in the world, apart from the currencies of a few East European countries.

The sharp appreciation in the won reduces corporations’ profit ratios and weakens price competitiveness overseas. A global powerhouse like Samsung Electronics might lose profit, but other companies struggle to export and sell their products.

One study claims that when the won rises 10 percent, exports decline 5 percent. The blow is even heavier for companies in overseas markets that compete directly with Japanese manufacturers armed with a cheap yen.

However, the won’s strengthening trend cannot be reversed through artificial means. As long as the current account balance sees a surplus from trade and capital inflow, there is a limit to what the government can do to intervene.

Financial authorities can regulate hot money and interfere with stabilization means, but they are pretty much powerless to do anything about the trade surplus. What they can do is consider ways to stimulate foreign capital through overseas investment to help stabilize the foreign exchange rates.

In the long run, the government must come up with a strategy to rebuild the economic structure by enlarging and accelerating the opening of the domestic market to stave off volatility in the foreign exchange rate and reduce the economy’s reliance on exports.

Log in to Twitter or Facebook account to connect
with the Korea JoongAng Daily
help-image Social comment?
s
lock icon

To write comments, please log in to one of the accounts.

Standards Board Policy (0/250자)

What’s Popular Now