In November, the value of the won against the U.S. dollar was shown to have declined by the largest margin among 42 countries worldwide. It is no exaggeration to say the won has become the "global weakest currency."
As the U.S. dollar strengthens against major currencies, domestic investors' expansion of overseas stock investments is driving down the won's value. Koo Yun-cheol, Deputy Prime Minister and Minister of the Ministry of Economy and Finance, hinted at even mobilizing the National Pension Service, but the downward trend in the won's value has not been contained.
◇ When the yen fell 1.4%, the won declined 3.1%
According to the Bank of Korea on the 29th, the won-dollar exchange rate closed at 1,470.6 won on the 28th, the last trading day of the month, up 5.7 won from the previous day. A higher exchange rate means a decline in the won's value. In November, the won depreciated 3.1% (46.2 won).
The won's depreciation last month was the largest among currencies in 42 countries tallied by the Bank of Korea (BOK). Next, the Taiwan dollar fell 1.9%. Among major Asian countries, the Japanese yen declined 1.4%, the Vietnamese dong 0.2%, and the Hong Kong dollar 0.1%. In addition, the Australian dollar fell 0.5% and the Canadian dollar 0.4%.
The U.S. dollar has recently been strengthening against major currencies. The dollar index, which indicates the dollar's value against the currencies of six major countries, steadily rose from 96 in mid-Sep. to above 100 this month. When the dollar index exceeds 100, it means the dollar is strong against major currencies.
As the U.S. federal government shutdown continued for a record 43 days through the 12th since last month, preference for the dollar as a safe asset strengthened. The U.S. economy's steadier performance compared with other countries such as Europe and Japan also played a role.
◇ Surge in overseas stock investment ... foreigners leave the domestic stock market
The won has fallen more than other currencies because domestic investors have steadily expanded their investments in overseas stocks. Demand to exchange won into dollars to buy overseas stocks is pulling down the won's value.
According to the Korea Securities Depository (KSD) securities information portal (SEIBro), individual investors made a net purchase of $5,934.42 million in U.S. stocks from the 3rd to the 27th of this month. That is 4.6 times the net purchase amount in Nov. last year ($1,279 million). So-called "west-learning ants" bought large amounts of tech stocks such as Nvidia and Alphabet.
Rhee Chang-yong, governor of the Bank of Korea, said at a press briefing after the Bank of Korea's monetary policy committee's regular meeting on the 27th, "In the past few weeks, the won has shown a slightly greater depreciation (against the dollar) than other currencies," adding, "The tilt of domestic investors toward overseas stock investments is having an impact."
In the domestic stock market, foreign investors are selling stocks. They also sell won and take dollars in the foreign exchange market, which drives the exchange rate higher. From the 3rd to the 28th of this month, foreigners recorded a net sell-off of approximately 14.4112 trillion won in the KOSPI market. It is the largest monthly net sell-off by foreigners on record. During this period, the KOSPI index fell 7%.
◇ Government forms four-party council on exchange rates ... "Only specific measures can change the trend"
As the exchange rate continued to rise, the government formed a "four-party council on exchange rates" on the 24th with the Bank of Korea, the National Pension Service, and others. Deputy Prime Minister Koo Yun-cheol followed up his verbal intervention on the 14th by holding a press briefing on the 26th, saying, "If volatility in the foreign exchange market expands, we will respond decisively."
However, foreign exchange market experts do not expect the won's decline to be resolved in the short term. Wi Jae-hyeon, an economist at NH Futures, said, "After Deputy Prime Minister Koo Yun-cheol's press briefing, the exchange rate rose again," adding, "Unless the foreign exchange authorities take active measures to slow the pace of the rise, it will not be easy to change the current trend in the medium to long term."