On Nov. 26, the government signaled that it

On Nov. 26, the government signaled that it would actively intervene in the foreign exchange market to stabilize the exchange rate. Then, the exchange rate, which was KRW 1,475 on the 25th, once fell to the KRW 1,450 level in the afternoon. However, the closing price rose again to KRW 1,475 at the time.

Why did this happen? To understand exactly why, we need to look back on the process so far.

As the foreign exchange market became unstable after the coup in early December last year, it reached 1,475 won at the end of December, up more than 175 won from a year ago. Since then, the exchange rate has fluctuated due to political instability, and it hit 1,484 won on April 9.

Fortunately, the exchange rate dropped to KRW 1,351 on July 1 as the presidential election was carried out safely and politics stabilized. Then, the government began to frequently intervene in the foreign exchange market and implement policies to induce the exchange rate to rise. Let’s look at one representative example.

From Oct. 2-10, during the Chuseok holiday when the domestic foreign exchange market was not open, the government raised the exchange rate by 30 won at once from 1,402 won to 1,432 won through NDF transactions in offshore markets. For reference, the leverage of offshore markets is 20 times higher, so you can make large transactions with a small amount of money.

After that, whenever the exchange rate fell, the government actively defended the exchange rate not only in the domestic foreign exchange market but also in the offshore market.

The government’s exchange rate manipulation as described above sent a signal to the foreign exchange market that the exchange rate will continue to rise in the future. As a result, future demand moved to the present, raising the exchange rate to over 1.470 won. In addition, individual investors joined the trend. This is because if you invest in the United States, you can even enjoy foreign exchange profits.

Then, this time, the government has come forward to stabilize the exchange rate. How absurd is this? The government has taken the lead in raising the exchange rate and then trying to pull it down again.

It is frustrating. When the exchange rate rises, domestic demand, which accounts for 90% of GDP, naturally shrinks significantly. Above all, the increase in producer prices is higher than the increase in consumer prices, which deteriorates the company’s management balance, thereby shrinking the company’s production, investment, and employment. Eventually, the economic slowdown intensifies.

In short, the government is taking the lead in making the people’s economic difficulties and suffering even more serious.