Rapidly Changing Exchange Rate

 I've been waiting for this September to come - to get my new phone, iPhone 14 Pro. As the rumours about the price spread, more and more people assumed that the price for this new phone in Korea would be much higher than the previous ones.

When the official price was posted, this worry about the cost became true. Although the price in USD remained the same as last year's iPhone 13 series, it increased by an average of 190,000 KRW. The problem behind this was the weakening of KRW.

Since I bought my phone directly from the U.S., with my mom's USD card, I wasn't hugely affected by the increase in price but I see people around me still having conflicts about whether to buy this new iPhone series or not due to the price. 

I've been hearing the news from my parents and on social media about KRW weakening consistently. In other words, the KRW exchange rate has been increasing and now, it has reached 1,400 KRW. 2009 was the last time when the exchange rate increased above 1,400 KRW so it tells how bad the situation is. According to market analysts, this phenomenon is expected to continue until the end of 2022. Business administration professor Kim Dae-jong expect this situation to get even worse with the increased exchange rate next year. 

Everyone is so concerned about the weakening of the currency, but why is the reason behind it? Firstly, it gives a negative reputation to the nation's value compared to other countries, and it's a fact since it is a reflection of the drop in the value of the nation's currency. Secondly, the rise in the exchange rate usually shows the weak economic structure of a country. This means that the country needs to take measures to make the structure better. Thirdly, the export market can experience negatives. Since the exports get cheaper, it means that the business can't pull enough foreign currencies as they used to do and this affects the asset and income of the business - negatively. This kind of results from the weakening of the currency contributes to inflation within the country which affects the citizens' life greatly. 

In some cases, a weak currency can benefit on the country but this is mostly when the country's export market is very active. In the case of South Korea, the weakening of KRW mostly affects the economy negatively. Therefore it would be important to put on suitable measures in government level in order to minimise the loss.

Why is the reason behind KRW getting weak? It is easy for Korean economy and the value of KRW to stumble since they rely greatly on foreign forces. It is important for foreign forces to buy KRW in order to increase its value but currently, this isn't the case. Also, with an increasing interest rate, specifically in the U.S., the foreign investments are expected to decrease. This will have more impact on weakening KRW. One way to tackle this problem would be to increase the interest rate within the Korea but in this case, the citizens who are suffering already will be facing more challenges.

I have heard my parents talking about interest rate since I was living in South Africa, but I never knew that it is such a big problem. Now that I know how the economy works and how the relationship between the countries are, I can clearly see why the weakening of currency is a problem, not only in Korea but worldwide. I hope there will be suitable measures to be applied.


References

https://namu.wiki/w/1997%EB%85%84%20%EC%99%B8%ED%99%98%20%EC%9C%84%EA%B8%B0

https://www.bloomberg.com/news/articles/2022-09-22/south-korean-won-weakens-below-1-400-for-first-time-since-2009?leadSource=uverify%20wall

https://www.koreatimes.co.kr/www/biz/2022/09/488_335813.html

https://thebusinessprofessor.com/en_US/economic-analysis-monetary-policy/weak-currency-definition

https://www.nocutnews.co.kr/news/5814080

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