Today, I would like to talk about the recent exchange rate that has been talked about and troublesome.

Today, I would like to talk about the recent exchange rate that has been talked about and troublesome. First of all, the dollar exchange rate recorded 1,390 won per dollar as of early morning on Saturday. It has been around 1,400 won again since last April. If you remember that the dollar exchange rate was close to 1450 won during the Legoland crisis in October 2022, the current soaring exchange rate, and the exchange rate exceeding 1,400 won… It feels quite burdensome, especially for those of us who remain traumatized by the 1997 Asian financial crisis, the current rise in the exchange rate is still a huge burden.

Maybe that’s why… the most recent question I’ve been getting is, will the dollar go over 1400 won? Yes, for now, I think it’s enough to go over for a moment. Is it April 16th… At that time, it was up to 1407 won during the day. Of course, the exchange rate showed such high volatility as the exchange rate soared, and the foreign exchange authorities immediately responded by showing great caution against such a sharp rise in the exchange rate. (The exchange rate has fallen sharply since then.) Then, will the round number of 1,400 won be maintained again this time… That’s what a lot of people are interested in, but last April and… It seems that there is a little different side now. First, let’s quote the remarks of Bank of Korea Governor Lee Chang-yong.

“We are focusing on volatility rather than on the target,” Bank of Korea Governor Lee Chang-yong said on the won/dollar exchange rate, which has been soaring recently. “We note whether the exchange rate is not appreciating or devaluing too quickly,” Lee said in a meeting with Korean correspondents after attending the G20 finance ministers and central bank governors meeting in Washington, D.C. and the annual meeting of the International Monetary Fund and the World Bank Group.

Governor Lee also said, “We will see what speed the exchange rate exceeds and goes out of the box to see if adjustments are needed.” During the won/dollar exchange rate surge in April, Governor Lee hinted at the possibility of intervention, saying, “The recent volatility is somewhat excessive considering market fundamentals,” adding, “If the exchange rate volatility continues, we are ready to take measures to stabilize the market and have sufficient means to do so.” (Finance Today, 24. 10. 26)

It’s in two paragraphs. Let’s look at the first paragraph. It says that we’re going to look at volatility rather than at the level of the exchange rate. In other words, rather than how much the exchange rate goes up and down, the exchange rate goes up and down… So, it’s a willingness to be vigilant about moving in one direction, and the second paragraph is to get this… the exchange rate above a certain level… It says we’re going to see if it creates a big problem. If there’s a problem, it means that we’re going to intervene, and that’s the problem, that’s volatility. Yes, it’s not so much about how much the exchange rate is, but it’s about how much it swings. And of course, people’s psychology, so if a certain level of exchange rate causes psychological anxiety and leads to volatility… I’m saying I’ll check that and respond.

Volatility rather than level? Then if the exchange rate exceeds 1400 won and it is not very volatile… Or, if the side effects are not significant, can the exchange rate at that level be tolerated? In fact, President Lee Chang-yong used to have a fixed exchange rate system in the past even during the Monetary Policy Committee… Problems used to occur when interest rates were reversed, but in the floating exchange rate system, there were fewer problems compared to the past because the exchange rate absorbs the reversal shock of such interest rates. There is no level to defend against in the floating exchange rate system. However, it is necessary to defend against the onset of concentration. Just as Japan intervened strongly in the 141 yen exchange rate during the settlement of the yen carry trade on August 5, when the dollar’s exchange rate fell to 141 yen… Compared to the past, the exchange rate of 141 yen to the dollar is not that low. However, the yen’s strength, or the rate of decline of the yen’s exchange rate, was too fast, so we intervened at that level. Is the level now an important era? Maybe that’s why… Minister Choi Sang-mok’s comment is meaningful.

Deputy Prime Minister and Minister of Strategy and Finance Choi Sang-mok held a meeting of correspondents in New York on the same day to attend the Korea Economic Forum and the G20 finance ministers’ meeting and said, “The current 1,400 won should be viewed differently from the past 1,400 won. Now we should see that level as a new normal.”

Deputy Prime Minister Choi also said, “The current level of the won-dollar exchange rate is qualitatively different from the increase in the exchange rate during the foreign exchange crisis.” The rise in the exchange rate is certainly an unwelcome phenomenon, but experts advise that the government should design and respond in a new way to meet the economic policy map as the analysis has grown that the won-dollar exchange rate has become the new normal around the 1400 won range.” (New Daily, 24. 10. 24)

Yes, the exchange rate of 1,400 won should be viewed differently from the past. During the 2000 won exchange rate during the Asian financial crisis, the won weakened significantly along with the risk of Korea’s moratorium, and foreign investors’ exodus became a reality. And during the financial crisis, which was close to 1,600 won, it was read as ‘rising exchange rate = falling nationwide’. However, the current rise in exchange rate is stimulated by the strong dollar, which is progressing in all directions around the world, so we need to look at it differently. It also makes other countries’ currencies weak… If the global dollar is strong… It makes it difficult to respond with the logic that we have to stop it simply because it exceeds 1,400 won. The yen is weakening like crazy, breaking past levels, but if we try not to let it exceed 1,400 won, it will weaken against the won as the yen is too weak and the won is less weak. Then, as the won’s exchange rate falls, it puts Korea’s exports at a disadvantage in the export structure of Korea and Japan. Yes, if the global dollar itself is strong and the dollar is strong, which is followed by other countries, do we fight this trend to keep a certain level