Korean Won Value Drops 5% in a Month... Similar to War-torn Russia

End of December Won-Dollar Exchange Rate at 1,472 KRW

Highest Level in 27 Years

In December last year, the value of the Korean Won fell by more than 5%. Among major currencies, it had the second-largest drop after war-torn Russia.

According to data received by Lim Kwang-hyun, a member of the Democratic Party of Korea, from the Bank of Korea on the 12th, the won-dollar exchange rate rose from 1,394.70 KRW at the end of November last year to 1,472.50 KRW at the end of December, an increase of 77.80 KRW. An increase in the won-dollar exchange rate means a decrease in the value of the Korean Won. The value of the Korean Won fell by 5.3% against the US Dollar in December. Among the G20 countries, it had the second-largest currency value drop after the Russian Ruble, which depreciated by 6.4%.

The depreciation rates of the major six currencies that make up the US Dollar Index were all smaller than that of the Korean Won: the Euro at 2.1%, the Japanese Yen at 4.7%, the British Pound at 1.7%, the Canadian Dollar at 2.6%, the Swedish Krona at 1.6%, and the Swiss Franc at 2.9%.

Even throughout last year, the decline in the value of the Korean Won against the US Dollar was greater than that of major countries. The value of the Korean Won fell by 12.5% over the entire year, with only five currencies having a higher depreciation rate: the Argentine Peso (-21.6%), the Brazilian Real (-21.4%), the Russian Ruble (-21.3%), the Mexican Peso (-18.5%), and the Turkish Lira (-16.5%).

The end-of-year weekly closing won-dollar exchange rate was 1,472.50 KRW, the highest level in 27 years since the end of 1997 when it was 1,695 KRW.

The Bank of Korea analyzed that the recent surge in exchange rates due to political instability following the martial law situation is having a direct and indirect impact on consumer prices. In response to a query from Lim regarding the impact of recent exchange rate volatility on prices, the Bank of Korea replied, "Considering the model estimation results, the rise in exchange rates since mid-November last year is estimated to have increased the December Consumer Price Index (CPI) growth rate by 0.05 to 0.1 percentage points."

The CPI growth rate in December last year was 1.9% compared to the same month the previous year, 0.4 percentage points higher than the previous month (1.5%). This is the first time the Bank of Korea has specifically disclosed the impact of exchange rate rises on prices before and after the martial law situation.

Hwang Jung-hwan, reporter jung@hankyung.com