Regulators Watchful on Currency Risk

By Lee Woo-cheol
Deputy governor of Financial Supervisory Service

Amid rapid appreciation of the Korean won in recent days, some are wondering out loud if it is a harbinger of choppy waters ahead for the economy.

Because exports have more or less pulled the economy along since the so-called “credit card crisis” sharply dampened domestic demand in 2002, the potential effect of lasting appreciation of the won on the exporters and more broadly the health of the economy certainly warrants our attention.

The weak dollar is one obvious reason for the strong won. The dollar began to lose ground against the yen and other major Asian currencies soon after the U.S. Federal Reserve hinted a pause in interest rate hikes. The weakening of the dollar has taken place against the backdrop of renewed concerns about structural weaknesses in the U.S. economy such as the widening current account deficit, widespread expectations of revaluation of the Chinese yuan versus the dollar, and China’s purported plans for diversifying its vast dollar reserve holdings.

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