The Korean won, which was testing 1,600 to the dollar just two months ago, dropped intraday to the 1,370 range as the foreign exchange market swung sharply. The won fell to as low as 1,376.5 to the dollar on the 24th, its weakest level in 11 months, before ending weekly trading at 1,382.4. Some forecast a further drop to 1,350 if Samsung Electronics (005930.KS) and SK hynix (000660.KS) sell their dollar holdings to fund large shareholder returns. The stock market's roller-coaster swings, with sharp daily gains and losses, also persist. Sidecar triggers on the KOSPI, which numbered just three last year, have already reached 49 this year. Adding to the strain, a spike in U.S. Treasury yields has heightened market anxiety. The extreme volatility across the currency, stock and bond markets has left investors dizzy.
A won settling in the 1,300 range against the dollar would bring significant benefits to the Korean economy. It would put a brake on price increases and ease pressure on monetary authorities to raise interest rates, thereby lightening the burden on the real economy. The problem, however, lies in the abrupt reversal of direction, unrelated to fundamentals, and its excessively steep pace. While the sharp rebound in the won's value after its decline stemmed from a mix of factors — including coordinated intervention by the United States and Japan to defend the yen — the prevailing view is that dollar sales by Korean exporters had the greatest impact. In fact, under government pressure to bring home dollars stockpiled overseas, the net amount of dollars companies sold in the first half of this year was more than triple the figure a year earlier.
But the burden of managing the exchange rate cannot be pushed onto companies indefinitely. With foreign exchange market risks — such as weakened confidence in domestic equities and interest rate uncertainty — still unresolved, it is difficult to expect currency stability from superficial quick fixes alone. Just as the introduction of single-stock leveraged exchange-traded funds (ETFs) and stock-boosting measures mobilizing the National Pension Service inflated market volatility to the level of a "gambling den," the possibility cannot be ruled out that artificial currency-stabilization measures could trigger even greater market instability. Wild short-term swings in the exchange rate and stock prices worsen people's livelihoods and cause major disruptions to corporate financing, investment and export strategies. There is also a strong concern that a steep drop in the exchange rate could erode the export profitability of small and medium-sized enterprises. The solution for market stability lies not in short-term prescriptions that burden the real economy, but in strengthening the economy's fundamentals and improving investment conditions to build solid confidence in the Korean economy.
