Keep interference at a minimum

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Keep interference at a minimum

The Korean won is continuing its strengthening trend in the new year. Deputy Prime Minister Kim Dong-yeon intervened verbally, warning to “act sternly against an overly slanted foreign exchange rate.” The local currency has appreciated due mostly to underlying factors — the pickup in the economy and expanding surplus in the current account.

The geopolitical risk from North Korean nuclear and missile threats has also eased. As a result, authorities restrain from intervening in the market in fear of stoking complaints from Washington in free trade agreement negotiations.

But the won has gained too fast. It rose 13.8 percent against the dollar over the year. Japanese companies enjoy a weak yen thanks to Abenomics. Washington has not made an issue out of it so far.

The biggest worry is the impact on Korea’s export competitiveness. A strong won would further burden large companies on top of higher corporate tax and smaller companies struggling to meet spikes in the minimum wage and cuts in working hours. Large companies would somehow manage by lowering profits, but small and mid-sized exporters cannot afford to do the same.

A stronger won can help the purchasing power of Koreans traveling abroad. It lowers import prices to aid household and corporate spending. The won’s strengthening may hurt exporters, but it bolsters domestic demand, which can buttress the government’s income-led growth policy.

The government should keep the temptation at bay. Previous currency policies to aid the economy have all backfired. Authorities should keep interference to a minimum so that economic players are not hurt by excess volatility in the exchange rate.

JoongAng Ilbo, Jan. 4, Page 30
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