hr: Currency

Photo Credit: Bryan Burke

The South Korean won turned out last among 23 other Asian counterparts as heavy loses take its toll on the currency due to record high oil prices. This just goes to show how sensitive the South Korean economy is to changes in oil prices

The Korean won’s steep decline went beyond the 10 percent mark versus the US dollar as we approach the middle of 2008. This decline marks the worst performance of the South Korean currency ever compared to its 16 actively traded counterparts in the midst of surging oil futures that reached $135.09 all time high on May 22. In stark contrast, during the previous year the South Korean won more than doubled in value.

For the first time in 11 years, the Bank of Korea’s forecast of the country’s current accounts this year reveal a sizeable deficit.

The won, however, rallied higher two days in a row on hunch that the central bank will be buying the won to prevent the currency’s recent decline from escalating costs of importation and to curb the accelerating inflation. The won increased by 0.3 percent against 1,034.40 US dollar today, as reported by Seoul Money Brokerage Services Ltd.

“Korea’s external current account balance is weak, unlike other countries in the region. his severely limits the ability of the government to strengthen the currency even if it wants to use a stronger won as a main tool to fight inflation,” said economist Kwon Goohoon, Goldman Sach, in Seoul.

South Korea imports 97 percent of its energy needs and ranks fifth among the world’s biggest oil importers. What we can see now is a widening current account deficit that’s really hurting the country’s economy. To date the deficit stands at $5.2 billion as compared to $1.7 billion the previous year.

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