Amid the fallout from the Middle East war, the won's real value fell last month to its lowest level since 2009 during the global financial crisis.
According to the Bank of Korea and the Bank for International Settlements (BIS) on the 26th, Korea's real effective exchange rate index was 85.44 (2020=100) as of the end of March. The real effective exchange rate is an indicator showing the degree of purchasing power a country's currency has in international trade. Last month's real effective exchange rate index was 1.57 points lower than a month earlier, the lowest since March 2009 (79.31) in 17 years.
A real effective exchange rate index above 100 means the currency is overvalued compared with the base year of 2020. Conversely, below 100 means it is undervalued. Korea's real effective exchange rate index was above 100 from October 2020 to July 2021. But it stayed in the mid-90s thereafter, then fell to the low-90s in December 2024 due to the martial law emergency. Since the end of last year it has come down into the 80s.
In BIS statistics last month, Korea's real effective exchange rate was the third lowest among 64 countries. The lowest was Japan (66.33), and the second lowest was Norway (72.7).
The decline in the won's real value is seen as the result of a jump in oil prices due to the Middle East war and a sharp rise in the won-dollar exchange rate. The exchange rate rose 6.3% last month based on weekly closing prices. It also topped 1,500 won for the first time since the 2009 financial crisis.
Higher import prices also appear to have reduced the won's real purchasing power. According to the Bank of Korea, the import price index for March (provisional, won basis) was 169.38. That is 16.1% higher than in February (145.88), the fastest increase since January 1998 (17.8%).
In the securities industry, there is a view that the won-dollar exchange rate will stabilize toward the end of the year. Lee Seung-hun, a researcher at Meritz Securities, said, "The won-dollar exchange rate at year-end will be around 1,420 won," adding, "The current high exchange rate is the result of a sudden variable brought on by the war."