Monday, May 21, 2018
Foreign Exchange War Looming Large
US’ Blatant Weak-Dollar Policy
Foreign Exchange War Looming Large
  • By Jung Suk-yee
  • January 26, 2018, 01:00
Share articles

Steven Mnuchin, U.S. Treasury Secretary, said openly on January 24 (local time) that a weak dollar is good for the United States in terms of trade.
Steven Mnuchin, U.S. Treasury Secretary, said openly on January 24 (local time) that a weak dollar is good for the United States in terms of trade.

 

U.S. Treasury Secretary Steven Mnuchin said openly on January 24 that a weak dollar is good for the United States in terms of trade. The remark has been interpreted as a signal that the U.S. government can drop the value of the U.S. dollar in order to improve its trade balance, accelerating the depreciation of the currency.

That day, the won-dollar exchange rate closed at 1,058.6 won per U.S. dollar, losing 11.6 won compared to the previous session and reaching the lowest level since October 30, 2014. The South Korean government tried to prevent the rate from dipping below 1,060 won, only to fail. Experts point out that the rate can reach 1,000 won or so in the near future.

In fact, the rate reached 1,058.6 won per U.S. dollar on January 8, too. At that time, the government caused the rate to rebound immediately to over 1,060 won by absorbing approximately US$1.5 billion. The rate moved around 1,070 won after that day.

This time was different though. The U.S. dollar index dropped to a three-year low of 88.87. “This is because the U.S. is pursuing a weak dollar to put pressure on South Korea with regard to KORUS FTA renegotiation,” Shinhan Investment explained, adding, “Its import restrictions on South Korean washing machines and solar panels are to cause an appreciation of the won as well.”

Under the circumstances, South Korean companies are expressing increasing concerns. In fact, their foreign exchange losses are already taking shape. For example, SK Hynix announced on January 24 that its foreign exchange losses amounted to 262 billion won in the fourth quarter of last year. Hyundai Motor Group, which showed the worst performance since 2010 in 2017, said that it was attributable to an appreciation of the won.