Reduced Impact and Implications of KRW Exchange Rates on Exports

The value of the Korean won (KRW) to the US dollar (USD) recently fell to its weakest level since 2009, and its real effective exchange rate (REER) was even lower. - The KRW to USD rate exceeded 1,400 won per dollar due to the tight monetary policy of major economies, the Russian invasion of Ukraine, and fears of a recession. - Korea’s REER in July also posted a 4.8% year-on-year drop, boosting the price competitiveness of Korean exports. But since 2010, FX rates have had less of an impact on the exports of major Korean industries. - Exports of general machinery, cars, displays, and semiconductors have been less affected by FX fluctuations. - FX rates have a relatively smaller effect on the export of intermediate goods than that of final goods. The reduced influence of exchange rates on exports is due to Korea’s sophisticated export structure and greater participation in the global production system. - Since 2000, the Korean government has prioritized advanced technologies. Thanks to this policy, high-tech industries, which value technological prowess over price competitiveness, now account for a relatively high proportion of exports. With the globalization of production systems, international trade, overseas production, and trade in intermediate goods have also expanded, reducing the impact of FX rates on export prices. It is important to upgrade the economic structure and establish a consistent support system for sectors most vulnerable to fluctuations in FX rates. - Companies highly vulnerable to FX risks should receive policy support and monitoring to prepare for price fluctuations. - Long-term tasks include pursuing differentiation with comparative advantage based on key technologies, securing a leading position in supply chains, and upgrading Korea’s economic structure by increasing the contributions of domestic consumption to economic growth.