SEOUL — The South Korean won fell late last week to its lowest mark against the U.S. dollar since October 2005, meaning better purchasing power but a possible drop in cost-of-living allowance for servicemembers in South Korea.
Commercial South Korean currency markets finished at 1,044.7 won per dollar Friday afternoon, down slightly from Thursday but still a 14 percent rise since November.
Currency experts and economists attribute the won’s weakness to several factors.
Fears of a global economic downturn have led foreign investors to pull their money out of South Korea, lowering the won’s demand and value. Trade imbalance is another contributor.
South Korean President Lee Myung-bak now is advocating a weaker currency to make South Korean goods cheaper abroad in an effort to boost sales.
“This is a change in exchange rate policy that the new government is taking,” said Kwon Soon-woo, director at the Samsung Economic Research Institute. “The new government is favoring a high exchange rate in the hopes of increasing South Korea’s exports.”
Kwon and other currency experts expect the trend to continue through the middle of the year, when they expect to see a slow reversal.
The dollar has stabilized recently against the yen, euro and other major currencies, but still remains weak because of recession fears and structural economic factors.
If the won doesn’t rebound soon, servicemembers could see their COLA drop as soon as May 16.
COLA dropped in South Korea on April 1, rose again April 16 and then dropped again May 1. Each change was driven by the dollar’s gains and losses against the won.
COLA is based on surveys that determine servicemembers’ shopping patterns and retail prices off post, according to information provided by the 175th Financial Management Center.
When overseas prices fall closer in dollars to what they are in the United States, servicemembers see less COLA money in their paychecks.
The Defense Department’s Per Diem, Travel and Transportation Committee usually makes decisions on any COLA changes twice a month.
Stars and Stripes reporter Hwang Hae-rym contributed to this report.
