The won-dollar exchange rate has risen by more than 7 percent this year, threatening the livelihoods of people struggling due to high inflation. This increase surpasses the rises observed during the 1997 Asian Financial Crisis and the 2008 global financial crisis.
The recent spike in exchange rates cannot simply be characterized as a precursor to crises of the past. This phenomenon arises from the global 'king dollar' effect, a consequence of sustained high interest rates set by the U.S. Federal Reserve (Fed) and instability in the Middle East. However, Korea's economy, heavily reliant on external factors, has long been susceptible to the 'three highs'?interest rates, inflation, and exchange rates. Concerns persist that the Yoon Suk Yeol administration, which has prioritized 'people's livelihoods' since the general election, may be overwhelmed by these challenges and face another economic crisis if it fails to navigate effectively.
The won-dollar exchange rate, which closed at 1,382.2 won on Friday, showed a 7.3 percent increase from the end of last year, when it stood at 1,288.0 won, according to the Bank of Korea on Sunday. Comparatively, from January 1 to April 19, 1997, before the Asian Financial Crisis, the exchange rate rose by 5.8 percent. Similarly, it increased by 6.8 percent during the same period in 2008, the year of the global financial crisis. The global financial crisis began in earnest when the U.S. investment bank Lehman Brothers filed for bankruptcy in September of that year.
On Tuesday, the won-dollar exchange rate surpassed 1,400 won intraday for the first time in 17 months. A stronger dollar primarily drives the recent surge in the won-dollar exchange rate. With the U.S. economy continuing to thrive independently, supported by robust consumption and employment, the dollar's appreciation is fueled by increasing speculation that the U.S. Federal Reserve will postpone interest rate cuts. Furthermore, the escalation of geopolitical crises, such as the Israeli-Palestinian armed conflict and tensions between Israel and Iran, has also bolstered demand for the dollar as a safe haven.
As the 'King Dollar' phenomenon continues to unfold globally, the value of the Korean won has depreciated even more than the actual appreciation of the dollar. The dollar index, which tracks the value of the greenback against a basket of six major currencies, has risen by 4.7% this year through April 19, which means the value of the won has fallen by an additional 2.6%.
"Given that Korea relies entirely on imported crude oil, it is bound to be hit harder by oil prices as the Middle East becomes more unstable," explained Seok Byoung Hoon, an economics professor at Ewha Womans University.
新亞型 abro@donga.com
