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Reduce our currency risks

Published: 20 Jan. 2017, 18:15

The foreign exchange market has been rocking amid escalated uncertainties after the triumph of Donald J. Trump in the U.S. presidential election. The indication of a faster-than-expected pace in hikes by the U.S. Federal Reserve after raising the benchmark interest rate in December, worsening conflict between Beijing and incoming administration of Washington and a chain of controversial remarks from president-elect Trump have added to the volatility.

The U.S. dollar gained 10.9 won, nearly 1 percent, to close at 1,177.6 won on Thursday after Fed chairwoman Janet Yellen said she expected rates to be hiked “a few times a year” until they reach close to 3 percent by the end of 2019. The dollar had bounced back from a correction in December amid doubts about Trump’s economic agenda.

The foreign exchange market is expected to stay volatile due to mixed messages and signs from the United States. The solid economic data points to higher interest rates. But Trump would prefer a weaker currency to buttress his agenda of increased jobs and improvement in trade balance. Washington could attempt to transfer the cost from higher interest rates and currency to countries like China that rake in handsome trade surpluses, aggravating uncertainties and conflict on the external front.

Korea fortunately has stacked away enough currency reserves that it maintains a fundamental resilience. Its foreign exchange reserves are a sizable $370 billion and sovereign debt rating is at sterling level. Although benefiting from depressed imports, Korea has been pulling in a hefty trade surplus. Thanks to that, the government recently was able to issue foreign exchange stabilization bonds at the cheapest rate.

But there is no time for complacency, given the unprecedented international financial climate. The steep fall in the won could bolster exports, but also trigger inflation and scare off foreign investors. Korea also could be victimized in the currency war between the United States and China. Washington could bundle up Seoul in the group of currency manipulating states targeting Beijing. China also could end a currency swap arrangement with Korea because of the planned deployment of the Terminal High Altitude Area Defense (Thaad).

Meanwhile, Japan has walked away from negotiations to renew a currency swap agreement over conflict about statues symbolizing wartime victims of sexual slavery. The government must come up with measures to strengthen its fortress against currency risks.

JoongAng Ilbo, Jan. 20, Page 30