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[Editorial] Rising won

Seoul should prepare for steep appreciation of Korean currency against US dollar 

Customs data released this week showed South Korea’s exports increased 20.1 percent on-year in the first 10 days of November, raising hopes that outbound shipments from Asia’s fourth-largest economy may rebound this month from a 3.6 percent fall in October.

In the Jan. 1-Nov. 10 period, the country’s exports declined 7.4 percent from a year earlier to $429.7 billion, due largely to a decrease in global demand amid the prolonged COVID-19 pandemic crisis.

The slump in exports, which account for about half of Korea’s economy, has eased since June, as major economies gradually resumed business activities and lifted border closures.

Fears of a resurgence in coronavirus infections across the globe seem to have been alleviated by recent significant progress in COVID-19 vaccine development. The subdued fallout from the pandemic on global commerce might help keep the momentum of recovery in Korea’s exports on the back of the increasing shipment of chips and automobiles.

What is worrisome for local exporters is a continuous rise in the value of the Korean won against the US dollar, which could weaken their price competitiveness against companies in Japan and emerging-market countries in particular.

The appreciation of the won against the greenback has accelerated especially since Joe Biden won last week’s US presidential election. The won-dollar exchange rate strengthened to 1,110 won per dollar Wednesday from 1,128.2 won Thursday last week. The local currency has strengthened by about 13 percent over the past eight months.

The recent strengthening of the won stems partly from the Chinese yuan’s appreciation against the greenback, which seems fitting for the US position. The Korean currency tends to fluctuate in line with movements in the value of the yuan, with the country relying on China, the world’s second-largest economy, for about a quarter of its exports.

The won is expected to appreciate against the dollar at a steeper pace down the road, as the Biden team is expected to push for a bolder stimulus package than President Donald Trump’s administration. Massive fiscal relief coupled with the US Federal Reserve’s decision to keep its key policy rate near zero by 2023 will lead to the further weakening of the dollar.

Foreign exchange authorities here need to be more adroit in what is known as smoothing operations to keep the won’s value stable while avoiding accusations of currency manipulation.

A Biden administration putting an emphasis on multilateralism based on international norms might take a stricter position on moves by US trading partners to interfere in the currency market.

Some observers here raise the possibility that it will further reduce the room for Seoul to intervene to prevent the precipitous rise in the won’s value if President Moon Jae-in’s government continues to remain passive toward Washington’s push to enhance a trilateral security cooperation with South Korea and Japan.

In this regard, Seoul will find it harder to maintain an equal distance from the US and China amid the escalating rivalry between the world’s two mightiest nations over a widening range of issues.

Biden’s “Buy American” policy, a key plank of “Bidenomics,” will also increase pressure on Korean manufacturers to build factories in the US and cut reliance on supply chains in China.

Korea needs to work out comprehensive measures to support local exporters, including those to help them diversify markets and develop new technologies.

The Moon administration and lawmakers of the ruling Democratic Party of Korea, which holds an overwhelming parliamentary majority, are also urged to refrain from introducing additional constraints on corporate activities.

Drastic deregulation is essential to spur facility investment and private consumption. With the steep appreciation of the won dimming the prospect of Korea’s exports, it is increasingly important to bolster domestic demand to make up for a decline in outbound shipments.

The Moon government and the ruling party have continued to increase fiscal expenditures in what critics say is a reckless manner to offset the negative effects of ill-conceived policies such as the income-led growth drive, while remaining negligent in carrying through regulatory and labor reforms.

They should now recognize that the launch of the Biden administration heightens the need for a substantial shift in their economic approach.