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.
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.
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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.
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.
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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
“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.”
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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.”
“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.
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Even so, there are no signs of major foreign investment banks trying to revise their outlook for the dollar-won exchange rate, he added.The South Korean won (Symbol: ₩; Code: KRW; Korean: 대한민국 원 ) is the official currcy of South Korea. A single won is divided into 100 jeon, the monetary subunit. The jeon is no longer used for everyday transactions, and it appears only in foreign exchange rates. The currcy is issued by the Bank of Korea, based in the capital city of Seoul.
The old won was a cognate of the Chinese yuan and Japanese y, which were both derived from the Spanish-American silver dollar. It is derived from the hanja 圓 (원 , won), meaning round, which describes the shape of the silver dollar.
The won was subdivided into 100 jeon (Korean: 전 ; Hanja: 錢 ; MR: chŏn), itself a cognate of the Chinese unit of weight mace and synonymous with money in geral. The currt won (1962 to prest) is writt in hangul only and does not officially have any hanja associated with it.
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The Korean won, Chinese yuan and Japanese y were all derived from the Spanish-American silver dollar, a coin widely used for international trade betwe Asia and the Americas from the 16th to 19th cturies.
During the colonial era under the Japanese (1910–45), the won was replaced by the Korean y which was at par with the Japanese y.
After World War II ded in 1945, Korea was divided, resulting in two separate currcies, both called won, for the South and the North. Both the Southern won and the Northern won replaced the y at par. The first South Korean won was subdivided into 100 jeon.
South Korean 1000 Won Note With American One Dollar Bill Stock Photo
The South Korean won initially had a fixed exchange rate to the U.S. dollar at a rate of 15 won to 1 dollar. A series of devaluations followed, the later ones, in part, due to the Korean War (1950–53). The pegs were:
The first South Korean won was replaced by the hwan on February 15, 1953, at a rate of 1 hwan = 100 won.
In 1946, the Bank of Joseon introduced 10 and 100 won notes. These were followed in 1949 by 5 and 1, 000 won notes.
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And assumed the duties of Bank of Joseon. Notes were introduced (some dated 1949) in dominations of 5, 10 and 50 jeon, and 100 and 1, 000 won. The 500 won notes were introduced in 1952. In 1953, a series of banknotes was issued which, although it gave the dominations in glish in won, were, in fact, the first issues of the hwan.
The won was reintroduced on June 10, 1962, at a rate of 1 won = 10 hwan. It became the sole legal tder on March 22, 1975, with the withdrawal of the last circulating hwan coins. Its ISO 4217 code is KRW. At the reintroduction of the won in 1962, its value was pegged at 125 won = US$1. The following pegs operated betwe 1962 and 1980:
On February 27, 1980, efforts were initiated to lead to a floating exchange rate. The won was finally allowed to float on December 24, 1997, wh an agreemt was signed with the International Monetary Fund.
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Until 1966, 10 and 50 hwan coins, revalued as 1 and 5 won, were the only coins in circulation. New coins, dominated in won, were introduced by the Bank of Korea on August 16, 1966, in dominations of 1, 5 and 10 won, with the 1 won struck in brass and the 5 and 10 won in bronze. These were the first South Korean coins to display the date in the Gregorian caldar, earlier coins having used the Korean caldar. The 10 and 50 hwan coins were demonetized on March 22, 1975.
In 1968, as the intrinsic value of the brass 1 won coin far surpassed its face value, new aluminium 1 won coins were issued to replace them. As an attempt to further reduce currcy production costs, new 5 and 10 won coins were issued in 1970, struck in brass. Cupronickel 100 won coins were also introduced that year, followed by cupronickel 50 won coins in 1972.
In 1982, with inflation and the increasing popularity of vding machines, 500 won coins were introduced on June 12, 1982. In January 1983, with the purpose of standardizing the coinage, a new series of 1, 5, 10, 50, and 100 won coins was issued, using the same layout as the 500 won coins, but conserving the coins' old themes.
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The Bank of Korea announced in early 2006 its inttion to redesign the 10 won coin by the d of that year. With the increasing cost of production, th at 38 won per 10 won coin, and rumors that some people had be melting the coins to make jewelry, the redesign was needed to make the coin more cost-effective to produce.
The new coin is made of copper-coated aluminium with a reduced diameter of 18 mm, and a weight of 1.22 g. Its visual design is the same as the old coin.
The 1 and 5 won coins are rarely in circulation since 1992, and prices of consumer goods are rounded to the nearest 10 won. However, they are still in production, minting limited amounts of these two coins every year, for the Bank of Korea's annual mint sets.
South Korean Won
In 1998, the production costs per coin were: 10 won coins each cost 35 won to produce, 100 won coins cost 58 won, and 500 won coins cost 77 won.
The Bank of Korea designates banknote and coin series in a unique way. Instead of putting those of similar design and issue dates in the same series, it assigns series number X to the Xth design of a giv domination. The series numbers are expressed with Korean letters used in alphabetical order, e.g. 가, 나, 다, 라, 마, 바, 사 . Therefore, ₩1, 000 issued in 1983 is series II (나 ) because it is the second design of all ₩1, 000 designs since the introduction of the South Korean won in 1962.
In 1962, 10 and 50 jeon, 1, 5, 10, 50, 100 and 500 won notes were introduced by the Bank of Korea. The first issue of
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