Stronger Won

 

South Korea's monthly current account surplus reached the third highest in history in March, extending its surplus streak to its 37th straight month, data showed. This is largely due to the decreased amount of related imported items from the fall in international oil prices. However, some express concerns that the strong won can weaken competitiveness in exports as the dollar inflows into the country.

According to the Bank of Korea (BOK) on May 4, the current account surplus came to US$10.39 billion (11.23 trillion won) in March. The figure increased by more than 60 percent from the US$6.44 billion (6.96 trillion won) surplus of the previous month. The current account surplus reached US$6.58 (7.11 trillion won) in January and US$6.44 billion (6.96 trillion won) in February. Accordingly, the current account surplus in the first quarter increased by US$8.23 billion (8.9 trillion won), or 54.2 percent, to US$23.42 billion (25.31 trillion won) from the US$15.19 billion (16.42 trillion won) of a year earlier. Some say that it is a “surplus from the economic recession,” as imports fell at a much faster clip than exports increased. According the analysis of the BOK, however, the surplus amount last one year was largely due to the drop in international oil prices.

As of the first quarter, the exports of petroleum products rapidly dropped by US$5.2 billion (5.62 trillion won), or 38.7 percent, to US$8.23 billion (8.9 trillion won) from US$13.43 billion (14.52 trillion won) year-on-year. During the same period, oil imports declined more sharply than exports. Oil imports in the first quarter this year decreased by US$11.56 billion (12.5 trillion won), or 46.5 percent, to US$13.29 billion (14.37 trillion won) from US$24.85 billion (26.86 trillion won) a year earlier. Oil imports during the same period nearly halved to US$4.12 billion (4.45 trillion won) from US$8.48 billion (9.17 trillion won) a year ago. Combining oil and petroleum products, the figure is short by US$15.92 billion (17.21 trillion won) in the first quarter from the same time last year. Excluding US$5.2 billion (5.62 trillion won) from the figure, which came from exports, approximately US$10 billion (10.81 trillion won) was the surplus caused by lower international oil prices. It is a similar scale to the total current account surplus increment in the first quarter.

As Korea has recorded a current account surplus, dollars are flowing into the country. In turn, the won is getting stronger. Two years ago, when then Federal Reserve Chairman Ben Bernanke suggested the end of quantitative easing for the first time, Korea was the only country among major emerging countries that saw an increase in the real effective exchange rates.

According to Samsung Securities, the real effective exchange rates of the Korean won in March increased 11.2 percent to 113.46 from 102.01 in April 2013, before Bernanke made a remark after analyzing the data of the monthly real effective exchange rates from the Bank for International Settlements (BIS).

Among the 26 major countries, only three countries – China with 14.3 percent, the U.S. with 13.4 percent, and the U.K. with 12.8 percent – showed a higher growth rate of the real effective exchange rates than Korea in the last two years.

The real effective exchange rates of the Russian ruble decreased as much as 27.1 percent, while Brazil, Australia, and Canada showed a 20.6 percent, 15.9 percent, and 14.5 percent decline. The rates of the Japanese yen also decreased as much as 11 percent, in which the country has implemented the weak yen policy through Abenomics.

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