The Korean currency has broken the exchange rate barrier of 1,100 won against the U.S. dollar. It closed at 1,082.10 won per dollar Friday, up 14.90 won from the previous session's close. It marked a 30-month high since June 14, 2018, when the Korean unit closed at 1,083.10 won per dollar. Bolstering the Korean won were the outlooks of a big U.S. economic stimulus measure and low interest rate.
Most worried are exporters because the strong currency means the weakened price competitiveness of their products abroad. A bigger problem is the possibility of a prolonged weakness of the dollar under a Joe Biden administration, which has already shown signs of going back to protectionist trade policies. The U.S. Democrats are pushing for the economic stimulus of $908 billion, and Federal Reserve Chair Jerome Powell also made clear his intention to maintain the near-zero interest rate until the COVID-19 pandemic's risks completely vanish.
All this means that the Korean monetary operators will find it hard to keep the won-dollar rate at an optimal level through any kind of smoothing operation. Nor will there be many policy tools to prevent the further rise of the won. The strong won, of course, has some positive aspects, such as increased purchasing power and eased inflationary pressure. However, its steep rise causes heavy foreign-exchange losses for local exporters who receive their export bill in U.S. dollars, dealing a critical blow to them.
All things considered, the soaring won could lead to massive damage to the Korean economy, which relies on exports for more than 40 percent of its gross domestic product. If it is difficult to avoid the prolongation of the weak dollar era, the government should come up with ways to help Korean companies bolster sales in both domestic and overseas markets.
Financial policymakers need to work out elaborate measures to keep the won from soaring further while providing tax and financial support for businesses to keep them competitive. Also needed are policies to induce business investment into plants and equipment and boost consumption. Now is time to mobilize all policy tools available to tide over the weak U.S. dollar.