The Korea Development Institute (KDI), a state-run think tank in South Korea, cautioned that the won-dollar exchange rate could soon breach the 1,500 won per dollar mark as political turmoil escalates after President Yoon Suk-yeol’s failed martial law imposition and the subsequent impeachment of Yoon and acting president Han Duck-soo.
“Since exchange rate fluctuations of 3% to 4% are considered ‘within the normal range,’ we cannot rule out the possibility of the won-dollar exchange rate reaching 1,500 won,” the KDI wrote in a report submitted to Rep. Lee In-young of the Democratic Party on Dec. 29.
The won-dollar exchange rate crossed the 1,480-won mark for the first time since the global financial crisis on Dec. 27, the day the Democratic Party-led National Assembly passed the impeachment motion against acting president Han. According to the KDI, if typical exchange rate fluctuations fall within a 3% to 4% range, the won-dollar exchange rate could move between 1,420 and 1,539 won even without a major external shock.
The KDI assessed that the recent exchange rate volatility reflects deep-rooted concerns about South Korea’s economy. “While a weaker won typically benefits export-driven companies, the KDI noted that its overall economic impact remains uneven and complex.
“Since Korea operates under a floating exchange rate system, authorities should refrain from intervening excessively in the foreign exchange market,” the think tank added. The KDI noted that many emerging economies have experienced foreign exchange crises after depleting their reserves to stabilize their currencies.
