Won-dollar exchange rate likely to be stable in '07, financial experts say
SEOUL — Don’t expect another surge in the won-dollar exchange rate next year, economists and bankers said this week.
South Korean domestic market trends and desires for weakened currency in both countries should mean little more than modest gains for the won against the dollar, according to local economists’ predictions and statements from South Korean central bank officials.
“I don’t think the won will get a lot stronger against the dollar,” said Lee Yoon-suk of the Korea Institute of Finance. “I would predict it would go slightly up to between 910 and 920 won to the dollar.”
Assistant professor Kang Sam-mo of Seoul’s Dongguk University said he expects a rate of about 900 won to the dollar.
The won has fluctuated in the 925 to 930 per dollar range this week in commercial markets, which represent rates on interbank loans and commodities trading.
Military financial facilities have been trading at about 900 won to the dollar.
Those figures mean that South Korean goods and services will continue to cost more for servicemembers than they did at the beginning of 2006, when the dollar bought 1,010 won.
South Korean bankers want the won to weaken against the dollar, the head of the Bank of Korea’s international bureau told reporters earlier this week.
The won’s strength was putting the South Korean economy at risk, bank director Rhee Gwang Ju said.
In January, the central bank will give commercial banks and investors more leeway in foreign investments, a move it hopes will drive demand for foreign currency at the expense of the stronger won.
Central banks can also intervene in foreign currency markets by changing the supply of their currency, but Bank of Korea officials and other economists don’t think such actions will be effective.
Instead, the won-dollar rate will stabilize because many large South Korean companies have contracts with payment due for imported goods in 2007, and they’ll need dollars for those obligations, Lee said.
In addition, Lee expects the South Korean trade surplus with the United States to drop.
In theory, that should already have happened. The stronger won means that South Korean goods such as Hyundai cars, LG televisions and Samsung phones cost more for American consumers. The continued surplus supports the won’s strength.
While South Korean officials want to encourage a weaker won so their exports remain competitive, U.S. officials want to make their own exports cheaper for foreign markets.
“Many economists expect a weak dollar policy to continue in the U.S.,” Kang said.
A weaker dollar also makes it cheaper for the United States to pay the trillions of dollars in debt that it owes to foreign banks.
“Above all, the U.S. will not carry out a strong dollar policy next year,” Lee said.
Stars and Stripes’ Hwang Hae-rym contributed to this report.