The South Korean won has been declining sharply against the U.S. dollar amid the weakening of the Japanese yen, which slumped to the lowest level against the greenback in 34 years. The Korean won’s value has fallen more than the Chinese yuan, British pound, and euro since the beginning of the year.
The won-dollar exchange rate closed at 1377 won on April 29., up 1.7 won from the previous trading day. Compared to the beginning of the year, the won’s value dropped by about 6.8%. This decline is less than that of the yen, which has fallen 12.38% against the dollar over the same period. But the won’s depreciation has been more pronounced than other major currencies, including the euro (-3.37%), Canadian dollar (-3.26%), yuan (-2.06%), and pound sterling (-1.93%).
The Korean won’s depreciation this year is the seventh largest among the 26 major currencies the U.S. Federal Reserve considers when calculating the dollar index.
Experts say the Korean won has weakened significantly this year due to U.S.-China tensions. This has adversely affected Korea’s exports to China, leading to a considerable decrease in demand for the won in both foreign exchange and financial markets. Exports to China accounted for about 25% of Korea’s total exports in 2010 but recently fell below the 20% mark, according to the Bank of Korea (BOK). In the first quarter of this year, exports to the U.S. reached $31.1 billion, surpassing the $30.9 billion exports to China. This is the first time in more than 20 years that exports to the U.S. exceeded exports to China.
The won’s downward spiral, driven primarily by decreased exports to China, is dragging down Korea’s global GDP ranking. Korea’s gross domestic product (GDP) stood at $1.712 trillion last year, ranking 14th in the world, according to data from the BOK, the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF). The last time Korea ranked 14th place was 11 years ago. Last year, Mexico’s GDP amounted to $1.7889 trillion, knocking South Korea out of its previous ranking of 13th place.
“The U.S. strategy of nearshoring, which involves moving production bases closer to consumer markets, has led to increased investments in Mexico,” said an official at the Finance Ministry. “Consequently, the Mexican peso appreciated by 10% against the dollar last year, while the won depreciated 1% against the dollar, effectively reducing the dollar-converted value of South Korea’s GDP.”
