S. Korea COLA might drop as a result of weaker won
August 28, 2008
CAMP RED CLOUD, South Korea — The South Korean won nearly reached a four-year low against the dollar in currency market trading Tuesday.
South Korea’s currency sank another 35 won early this week to 1,089.50 won against the dollar on continuing signs of domestic economic weakness and the dollar’s mild global rebound.
South Korea’s gas retailers recently had to meet payment deadlines to foreign oil companies in dollars, which further fueled the won’s selloff.
"The Korean won could soar up to 1,100 won or more against the dollar in a very short period of time if this trend keeps persisting in the market," said Jang Jae-chul of the Samsung Economic Research Institute.
However, as Jang told Stripes last week, he expects the undervalued won to regain some momentum against the dollar by the end of the year.
The won’s weakness makes shopping off-post a relative bargain compared to earlier this year, but increases the likelihood that servicemembers will see a cost-of-living allowance drop at some point next month.
In July, the Bank of Korea began selling $10 billion in foreign currency to prop up the won, a move economists considered drastic. As the won falls closer to 1,100-to-1, the bank may intervene again to try to convince markets that it’s serious about stemming the decline, Jang said.
The won hasn’t been this weak against the dollar since late 2004, just before the South Korean currency shot up 100 won, putting it at a 1,050-to-1 exchange rate.
The won strengthened to 898-to-1 in November before falling to its current depth.
The 1,089.50-to-1 commercial rate is used in market trading and for bank customers trading very large sums. Banks typically offer consumers a rate 20 to 40 won lower than the commercial rate.
Stars and Stripes reporter Hwang Hae-rym contributed to this story.