, contestants battle each other to their death for the chance to win 45.6 billion South Korean won. That sounds like a boatload, but it's actually a lot less in U.S. dollars—the South Korean currency is one of the weakest in the world. Why is the South Korean won so weak?
Currency rates right now put one South Korean won equal to just 0.00084 U.S. dollars. That’s almost 12 times less than the value of a penny. In U.S. dollars, the
The value of the won could decline even further. In Sept. 2021, Bloomberg reported that analysts predict the South Korean currency could fall to 1, 200 per U.S. dollar by Dec. 2021 as the U.S. dollar strengthens and exports moderate.
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That prediction happened earlier than expected. On Oct. 12, the won slid to 1, 200.40 against the dollar, its weakest level in over a year. The decline prompted South Korea’s central bank to consider intervening in the foreign exchange market, reports Nikkei Asia.
The South Korean currency has seen four months of decline, reaching a one-year low in Sept. 2021. As Asia’s most risk-sensitive currency, the won is often an indicator for currencies in neighboring countries, Bloomberg reports.
There are several reasons the South Korean won has weakened against the U.S. dollar over the last 14 months. Those reasons include:
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South Korea’s won drops below the psychological barrier of 1, 200 per dollar level for the first time in more than a year pic.twitter.com/1ioya42zlE— NFTvalues (@NFTvalues) October 12, 2021
, all of the contestants are so mired in debt and strapped for cash that they're willing to risk death for the chance of winning the grand prize. Many see the show as a commentary on the socio-economic inequality and indebtedness of South Korea’s lower and middle class.
South Korea has the third-largest economy in Asia, behind China and Japan. The country is one of the world’s largest exporters of automobiles and integrated circuits for electronic products. However, many of the country’s residents are reportedly living with crippling debt.
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. According to CEIC Data, household debt in South Korea accounted for 106.6 percent of the country’s nominal GDP in March 2021, reaching over $1.867 trillion (in U.S. dollars). Financial hardship is one of the leading triggers for suicides in South Korea, The Korea Herald reports.
There's also a vast disparity between South Korea’s wealthy residents and those in the lower and middle classes. The country’s top 20 percent of earners have a net worth 166 times that of the bottom 20 percent, reports The Conversation.Despite a highly unusual intervention by the Bank of Korea last week, the South Korean won continued to be weak on Wednesday after recording an annual low of 1, 190 won to the dollar on Tuesday.
The won bounced back temporarily on Tuesday, but the market fell again in the afternoon to close at 1, 189.4 won per dollar, down 1.9 won from the previous day.
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The Bank of Korea intervened in the foreign exchange market last week in an effort to prop up the won. Customarily, interventions by Korean monetary authorities have been to weaken the won, rather than strengthen it, in order to promote exports.
The won is weakening due to factors beyond the control of Korea, a highly trade-dependent economy. First, it is caused by the strengthening of the dollar, a trend which has emerged as a result of heightened risk-averse sentiment in the wake of the intensifying trade dispute between the US and China, Korea’s top trade partner.
According to the Bank of Korea, the won saw a 6.0% value fall against the dollar, from 1, 115.7 won at the end of last year to 1, 187.5 won on the 13th of this month. Bar the Argentinian peso and the Turkey lira, the won posted the most significant decline among major currencies.
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Yet South Korea has not suffered from the factors that battered those two economies: Turkey suffered a foreign exchange crisis and Argentina was bailed out by the IMF.
The won is sympathetic to the currency of Korea’s leading trade partner, China. The Chinese yuan remained steady from 6.879 yuan at the end of last year to 6.8811 yuan on the 13th of this month, but has fallen 2.1% since due to the escalating trade conflicts.
Note: 1) US dollar on an index basis and other currencies are changing their currency value against the US dollar. 2) Index for major currencies (euro, yen, pound, Canadian dollar, Swedish krona, Swiss franc). 3) Index for 26 major trading partners’ currency. 4) Reference data for May 10 due to delayed notification of Fed: Bloomberg, Reuters
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“The dollar has been strong since April last year, but the dollar-won exchange rate did not move much, ” an official told Asia Times. “However, the dollar-won seems to be looking for a new price level as a number of factors have been reflected since mid-April.”
One factor in the won’s weakness – South Korea’s surprisingly poor GDP results in Q1 – are expected to ameliorate in Q2.
“The first-quarter GDP figures were unexpectedly sluggish, and the real economy is not in a serious condition, ” said an official at the Ministry of Strategy and Finance. “Over time, concerns over sluggish indicators are expected to abate.”
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“There is a strong trend in the global foreign exchange market that distinguishes safe heaven currencies from other currencies, and risk-averse sentiment is prevailing, ” said a market expert, suggesting that the won is one of the victims of this sentiment.
Even so, there are no signs of major foreign investment banks trying to revise their outlook for the dollar-won exchange rate, he added.
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