Time to End Our Dollar Dependence The Chosun Ilbo
Late last year I flew into Belgium, the capital of the European Union. The moment I saw the notice "1 EURO=U$1.67" at the Brussels Airport money exchange, I sighed: the dollar had depreciated so much. The standard exchange rate that day was one euro for $1.45, but the cash buying rate is naturally higher because of transport and holding costs. In any case, the euro-dollar exchange rate that day was excessively low for the dollar.
I cursed myself for having exchanged my won for dollars. I took a sizable hit on the exchange, and I wasn't happy. To make matters worse, I invited ill luck and embarrassed myself. Just as I was collecting my euro notes at the exchange counter, I noticed a different rate on my receipt: "1 EURO=U$1.70." This was more expensive than the posted rate, so I complained to the teller. But actually I had found the source of the trouble. "I'm offended that you seem to have overcharged me," I protested. The response left me speechless: "That exchange rate was posted an hour ago; the dollar has weakened since then... If you don't want to exchange, you can get your dollars back any time."
The U.S. dollar is not on the list of foreign currencies that world businesses are buying these days. Most popular in Southeast Asia is the Chinese yuan, and in world exchange markets the Swiss franc, euro, Japanese yen and Canadian and Australian dollars are attractive. These currencies grow more valuable just by holding on to them, so everyone is eager to buy them.
With us, however, the reverse is true. A junior local bank official criticized our lack of foreign exchange consciousness by saying, "Koreans prefer dollars either when they visit China on business or when they tour Europe." A foreign exchange dealer at a foreign bank commented, "Multinationals prepare their asset portfolios in various currencies including the dollar. But most local corporations, except a few conglomerates, have yet to free themselves from transactions in U.S. dollars only."
As our average foreign exchange consciousness lags behind that of the citizens of our global rivals, either a rise or a fall in the value of the dollar causes us big problems. Though a weak global currency, the dollar is strong against our won. The dollar that fell to W900 in October last year recently spiraled up to W980.
A strong dollar is evidently good news for our export businesses, but we miss out in many other areas. "The dollar was generally weak last year. As a means of hedging, we sold hundreds of millions of dollars in futures. As the dollar has strengthened recently with the contract deadline approaching, we've effectively sustained a loss of billions of dollars," lamented a foreign exchange executive at a shipbuilding company. Had they effected a swap transaction, diverting the dollar into strong currencies like the euro or yen, he regretted, his firm would have been able to minimize the loss.
Individuals also frequently sustain losses under the common misperception that "foreign currency" equals "the dollar." The biggest victims these days are those husbands who have to support their families living overseas for educational purposes. Because of the strength of the dollar against the won, when they remit a sum in dollars they now have to pay nearly 10 percent more in won than before. Had they chosen strong currency deposits like the euro at the outset, they would have avoided the damage.
Since last year China has been shifting part of its foreign reserves invested in American bonds to the euro and other currencies. It's a state strategy aimed at freeing itself from a one-sided reliance on the dollar. We also need a superior currency management strategy utilizing a diversified stable of currencies like the euro and yen and other strong currencies that appreciate if you hold them. We need to keep in mind foreign exchange experts' advice that exchange rates are not in the realm of God, but in the realm of corporations and individuals, and they can be managed.
This column was contributed by Lee Kwang-hoe from the Chosun Ilbo's Business News Desk.