Intervention on Exchange Rate Slide Hinted with the Stabilization Bond

As the doubt on the economic recovery of the United States is growing, the exchange rate of Won to the US dollars is sliding fast.

The Ministry of Finance and Economy (MOFE) has hinted for an intervention to the foreign exchange market on May 20 by saying, `The appreciation rate of Won in the foreign exchange market is worrisome,` but failed in reversing the trend. The government suggested an active intervention is possible as it might input the fund issued from the foreign exchange stabilization bond to the foreign exchange market.

The Won-dollar exchange rate on May 20 dropped eight Won compared to the 17th and closed at 1253.6 Won. This is the lowest figure since February 28 (1250.8 Won). The Won-dollar exchange rate had slipped 8.2 Won in the 17th.

Deputy prime minister and minister of the MOFE Jeon Yun-Churl met with reporters in the day, and said, `We are worrying about the speed of Won appreciation in the foreign exchange market.`

Additionally international affairs policy coordinator of the MOFE Kim Yong-Deok said, `We are watching closely since the foreign exchange rate of Won is slipping too rapidly,` and suggested the government might intervene in the market saying, `If it is necessary, 500 billion Won of the foreign exchange stabilization bond issued on May 20 may be utilized.`

The main reason of the high value of Won in the foreign exchange market is the weakness of the US dollars.

Even though the growth rate of the first quarter in the United States recorded a rather high of 5.8 percent (interim figure), the growth rate is expected to get lower beginning from the second quarter.

In contrast, Japanese Yen showed strong based on an analysis that Japanese economy might have already hit the bottom and the exports including vehicles are showing signs of recovery.

The exchange rate of Yen-dollars hit the roof of 134.7 Yen per dollar on January 24 this year, but continued to slide to reach 125.7 Yen mark as of half four on May 20. Taiwanese and Singapore currencies also showed strength against the US dollars.

A related person of the Bank of Korea remarked, `The decline of the exchange rate between Won and the US dollars may reflect a fundamental improvement of the economic conditions including the recovery of the domestic economy and the notching-ups of the national credit rate.

Joong-Hyun Park Do-Young Kim sanjuck@donga.com nirvana1@donga.com