South Korean Won Plummets 7.3% Against U.S. Dollar in Sharpest Drop Since 2008

The South Korean won has plunged 7.3% against the US dollar in 2024, the sharpest drop since 2008, due to geopolitical tensions and a strong dollar. Policymakers express "serious concerns" and are working to minimize the economic impact.

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Ebenezer Mensah
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South Korean Won Plummets 7.3% Against U.S. Dollar in Sharpest Drop Since 2008

South Korean Won Plummets 7.3% Against U.S. Dollar in Sharpest Drop Since 2008

The South Korean won has fallen 7.3% against the U.S. dollar so far in 2024, marking the sharpest drop since the 2008 global financial crisis. The won closed at 1,382.2 against the greenback on April 19, down from 1,288 at the end of 2023. This represents the biggest decline since March 1990 when South Korea adopted the market average exchange rate system.

Geopolitical uncertainties, the resurgent dollar, and tensions in the Middle East have been cited as the primary factors contributing to the won's depreciation. Policymakers from South Korea, the United States, and Japan have expressed "serious concerns" about the recent sharp depreciation of the won and Japanese yen during their first trilateral meeting in Washington.

The South Korean government is closely monitoring the situation and working on responses to minimize the negative impacts on exports, supply chains, and the broader economy. Bank of Korea Governor Rhee Chang-yong predicted that the won-dollar exchange rate may stabilize if tensions in the Middle East do not escalate further, as the region is a major source of oil imports for South Korea. However, he noted that there are still "many uncertainties" stemming from developments in the region.

Why this matters: The sharp depreciation of the South Korean won has significant implications for the country's economy, as it can impact exports, supply chains, and overall financial stability. The situation also highlights the interconnectedness of global markets and the potential for geopolitical events to have far-reaching economic consequences.

The exchange rate issue has been a prominent concern, with the Korean won dipping to an alarming level of 1,400 won per dollar during Tuesday's intraday trading before closing at 1,394.50 won. Finance ministers from South Korea, the United States, and Japan acknowledged the severity of the situation during their trilateral meeting, underscoring the need for close cooperation and monitoring to address the challenges posed by the won's depreciation.

Key Takeaways

  • South Korean won fell 7.3% against USD in 2024, biggest drop since 2008 crisis.
  • Geopolitical tensions, strong dollar, and Middle East issues cited as main factors.
  • Policymakers from South Korea, US, and Japan expressed "serious concerns" over won's depreciation.
  • South Korean government monitoring situation and working on responses to minimize impacts.
  • Won-dollar rate may stabilize if Middle East tensions do not escalate further.