Time for Redenomination
By Shim Jae-yun
New Media Editor
Every nation has its own currency with different values on exchange markets. The exchange rate represents the strength and weakness of the currency and it is also closely connected to the status of the nation in the international community. A nation is supposed to possess its own currency pursuant to its economic and political standing, as it is sometimes a matter of national pride.
My family and I went on a tour of Europe in April 2006 in a coach along with some 40 other passengers from 10 different countries. We were the only Koreans. The British guide, a veteran with decades of experience, talked about the exchange rates of various currencies to the euro. He appeared to be very proud of the fact that the British currency ― the pound ― was the only currency stronger than the euro.
He stressed that British money is the strongest among all currencies, including the U.S. dollar, the Japanese yen and the Chinese yuan as well as the euro. He became cynical while talking about exchange rates to the euro of all the more weaker currencies of mostly less developed nations in Southeast Asia, Africa and even Latin America.
I became nervous fearing the guide would mention the Korean won, which was exchanged at more than 1,300 won to the euro at similar levels to most underdeveloped economies. Once disclosed, it would lead the passengers on board to believe that Korea is a very poor nation with a weak currency and far behind those of major industrial countries. Fortunately, he did not touch upon the matter.
The British Economist magazine has recommended that Korea re-denominate its currency. Turkey and Romania have already sought re-denomination and low currency values are rapidly increasing, according to the magazine. ``At this rate, South Korea will find itself an international oddity with its exchange rate of 1,400 won to the euro.'' It urged South Korea to transform the Korean won ― ``the OECD's lightest currency into its most confusing,'' one won to one euro.
The transition team for the current Roh Moo-hyun administration created a stir in February 2003 by stating the need and inevitability of re-denomination. But the plan was shelved later due to the need for in-depth consideration, as it would bring about a far-flung impact upon the economy and the people's livelihood.
However, the issue also reflected sensitivity, calling for an extremely cautious approach in dealing with the matter. Some 35 years have passed since the nation first introduced the 10,000 won note in 1973. The gross national income per capita, which amounted to only $400 at that time, is approaching the $20,000 level. South Korea has already become the world's 13th largest economy.
The central Bank of Korea plans to issue 50,000 won and 100,000 won notes from the first half of 2009. Korea will then posses paper money with first and second highest units among the member nations of the Organization for Economic Cooperation and Development (OECD). But in real value, the envisioned 100,000 won notes will not match major high-priced notes like the 500 euro, which is equivalent to some 700,000 won.
Korea is the only OECD nation that maintains a quadruple-digit exchange rate to the U.S. dollar. The Korean won needs many zeros compared to other currencies. The more zeros for the bank notes will result in more inconveniences in people's daily lives and more burden on the economy in the long run. This will also lead to frequent miscalculations.
Now, we need to consider re-denomination. Turkey, for instance, re-denominated its currency ― the lira ― at the 1,000,000 to one rate in 2005. As a result, the nation now enjoys a positive outcome ― putting soaring inflation under control in single digits and maintaining stable economic growth rates.
Without doubt, there will be considerable social and economic costs if re-denomination is undertaken in Korea, but currency transformation has become crucial given the enhanced national status in the international community and changed economic situation. The incoming Lee Myng-bak government needs to seriously consider the advantages and disadvantages, from both the short and long-term perspectives, of implementing redenomination.