Recently, the exchange rate of the South Korean won against the US dollar exceeded the 1,400 won mark, which is the first time since 2022, mainly affected by the strengthening of the US dollar, geopolitical tensions in the Middle East and rising international oil prices. The South Korean government has taken emergency measures to deal with this fluctuation, and this series of economic changes may have some impact on China's import and export trade, as well as the lives of Chinese citizens in South Korea.
[graphic=Aju Economy]
As international oil prices climbed to a high of $90 per barrel and the South Korean won exceeded the 1,400 won mark against the U.S. dollar, the global economy is entering a new normal of high oil prices and high exchange rates.
According to data from the Ministry of Trade, Industry and Energy, South Korea's petrochemical exports fell sharply by 15.9% year-on-year last year, and the decline in exports is expected to continue this year. There is widespread concern that rising oil prices will further push up the prices of petroleum products for domestic consumption, and for industries such as construction and manufacturing, which are already affected by rising raw material prices, the rise in the price of petroleum products such as diesel fuel has undoubtedly increased the operating pressure.
According to analysis, the depreciation of the South Korean won is mainly due to the slowdown in the expectation of interest rate cuts by the US Federal Reserve, the intensification of geopolitical risks in the Middle East such as Iran's air strikes on Israel, and Israel's retaliatory actions...
[source = Gettyimagesbank]
Abnormal exchange rate of South Korean won against the dollar: "retrograde" under trade surplus
The exchange rate of the won against the dollar rose by about 110 won in four months from the end of last year to April this year. A rising exchange rate means a depreciation of the won, both for economic and non-economic reasons.
[As for whether the Korean won is rising or falling, let me briefly explain that the difference between "pair" and "exchange" is as follows: the term used when comparing one currency with another currency, and the term used when exchanging one currency with another. For example, the depreciation of the U.S. dollar against the won means that the same amount of U.S. dollars can be exchanged for less won. Conversely, the appreciation of the U.S. dollar against the won means that the same amount of U.S. dollars can be exchanged for more won. 】
This change reflects the relative decline in the value of the won, which is driven by both economic and non-economic factors.
From an economic point of view, exchange rates are usually inversely related to the trade balance between countries. When the trade balance surplus increases, it means that more Korean goods are sold, which in turn leads to an increase in the supply of dollars in the foreign exchange market. In this case, the value of the won should have risen and the exchange rate would have fallen accordingly.
In fact, South Korea's trade balance recorded a surplus of $4.28 billion in March this year, and it has maintained a surplus for 10 consecutive months since June 2023. From the perspective of the physical economy, the increase in the supply of the US dollar should lead to a decrease in the exchange rate of the won and an appreciation of the won. However, the opposite is true of the exchange rate movements in the real market.
Under normal circumstances, a sustained trade surplus with the United States should cause the won to fall against the dollar, but South Korea has experienced a "retrograde" phenomenon. Judging from the indicators of the financial market and the real economy, the exchange rate movement in South Korea does not seem to follow the conventional logic. This has sparked speculation that South Korea's foreign exchange market may be volatile due to geopolitical factors. Victor Cha, a South Korea expert at the Institute for Strategic and International Studies (CSIS) in the United States, also issued some warning messages about the geopolitical risks on the Korean Peninsula.
[source=Maeil Economy]
Heightened geopolitical risks: North Korean provocations and South Korean won exchange rate turmoil
In a recent webinar, Chief Victor Cha predicted that North Korea's provocative behavior could increase as the U.S. election approaches this November. Citing historical data, he pointed out that North Korea's provocations have also increased during the past U.S. elections, especially after the Kim Jong-un regime came to power, and the frequency and intensity of provocations have increased significantly compared with the Kim Jong-il period.
Since the beginning of this year, North Korea has carried out more than a dozen missile provocations, which have exacerbated tensions on the Korean Peninsula. There are multiple reasons behind these provocations: first, the change in North Korea's relationship with Russia, from receiving aid in the past to providing weapons and other supplies to Russia, second, the growing military-technical cooperation between North Korea and Russia after the war in Ukraine, including the provision of military supplies and the exchange of advanced technology, and finally, the possibility that North Korea is accepting nuclear warheads and missile technology, which need to be tested on North Korean soil.
Victor Che stressed that the Group of Seven (G7) should play a greater role given the limited functioning of the United Nations. He proposed that the G7 should expand its membership to include countries such as South Korea, Spain, and Australia to build a broader global governance system. However, such an expansion could also exacerbate antagonism with countries such as Russia and China, further exacerbating tensions in the international community.
Tensions in the Middle East and cross-strait relations following the introduction of a new government in Taiwan Province of China may also be responsible for the increase in tensions in Northeast Asia. Against the backdrop of heightened global geopolitical risks, South Korea could be the biggest victim. Although the South Korean economy has not yet been directly impacted by geopolitical risks, the continued rise in the South Korean won exchange rate has attracted widespread attention. The instability of the exchange rate will affect the stable operation of the economy, so from the perspective of investment, it is more important to eliminate the risk of the exchange rate than to rely solely on the exchange rate.
It can have a multifaceted impact on Hankoyama people
- Rising cost of living: The depreciation of the won may lead to an increase in the price of imported goods, including food, daily necessities, etc., which will increase the cost of daily living in Hanhua. A falling exchange rate could also trigger a rise in prices, further increasing the burden of living.
- Decrease in the value of savings: If Chinese people hold won savings, the depreciation of the won will directly lead to a decrease in the real value of these savings. This can have a negative impact on an individual's financial planning and future plans.
- Increased investment risk: For Hanghwa investors, the depreciation of the won may increase investment risk. Fluctuations in exchange rates may lead to increased uncertainty in investment returns, requiring greater caution in assessing and managing investment risks.
- Employment and income impacts: The depreciation of the won may have an impact on the South Korean economy, which in turn will affect the job market and wage levels. In Hanhua, there is a risk of increased competition for jobs or a decrease in income.
Exchange rate movements are a complex market phenomenon, and their impact varies depending on individual circumstances. Therefore, Hangha needs to pay close attention to the trend of exchange rate changes and plan their personal finances and investments reasonably to cope with possible risks and challenges.