Won-Dollar Exchange Rate Surpasses 1500, Worsening Economic Burden

The won-dollar exchange rate has surpassed 1500 won and continues to climb. According to the Bank of Korea, the average won-dollar exchange rate from May 1st to 5th was 1522.4 won. The monthly average rate, after rising from 1448.4 won in February to 1492.5 won in March, saw a slight dip to 1485.0 won in April before rising again to 1491.3 won in May, showing volatility at high levels.

A rising exchange rate typically benefits exporting companies, as they can secure higher profits when converting dollars earned abroad into won. Sectors with a high export ratio, such as semiconductors, automobiles, and shipbuilding, are prime examples.

Conversely, industries with a high import ratio of raw materials and energy face increased burdens. As crude oil, natural gas, and grains must be paid for in dollars, a rising exchange rate leads to increased costs. The refining, airline, and food industries fall into this category. Increases in import costs are likely to translate into upward pressure on product prices.

There is an analysis suggesting that the effect of a high exchange rate on improving export competitiveness is not as significant as in the past. In economies like Korea, which have a high dependence on imported intermediate goods, the export increase effect from a higher exchange rate can be offset by rising costs. Particularly for items like semiconductors, crude oil, and secondary battery materials for which substitutes are hard to find, import volumes must be maintained, leading to higher procurement costs.

A high exchange rate also leads to increased living expenses for general households, including fuel, groceries, and utility bills, through rising import prices. Costs for overseas travel and direct purchases from abroad also increase.

Concerns are being raised that rising international oil prices, combined with the high exchange rate, could further exacerbate companies' cost burdens and inflationary pressures. The Korea Institute for Industrial Economics & Trade (KIET) diagnosed that during the 2008-2009 global financial crisis, a sharp drop in international oil prices mitigated energy import costs and absorbed the shock. However, currently, the concurrent surge in the exchange rate and oil prices means the previous buffer for energy costs is absent. Kim Tae-hoon, a junior researcher at KIET, analyzed that in economies highly dependent on imported intermediate goods like Korea, the effect of a higher exchange rate on enhancing export competitiveness can be significantly offset by upward cost pressures.