The region of the Korean peninsula has seen several currencies since it was first brought under unified government more than 2,000 years ago. South Korea’s present currency, the won, was initially launched in 1902 during a brief period under the Korean empire. It was then adopted once again after WWII when the nation took its present form.
The won is symbolised by ₩ and has a currency code of KRW. There is currently ₩685 trillion in circulation, and a volume of approximately US$2.2 billion is traded daily (US$560 billion annually) on the foreign exchange market.
The currency is regulated by the South Korean Central Bank. Single wons are currently issued as coins, and the currency has banknotes of ₩1000, ₩5000, ₩10,000 and ₩50,000. The banknotes feature images of the Confucian scholars Yi Hwang and Yi I on one side, and artistic images of Korean flora and cultural icons on the other.
The History Of The South Korean Won
The Korean peninsula is known to have been inhabited since 4,000 BC. The use of currency in Korea dates to at least third-century B.C. in the Yan and Gojoseon kingdoms, where Asian knife coins, a type of metallic token in the form of weapons and farm implements, were traded. Grain was also traded as a form of currency at this time.
The first standard coins issued in the region date to around 996 AD in the Goryeo dynasty. The dynasty was overthrown in 1392 by the Joseon dynasty, which established its own currency. At first, it used paper notes printed on mulberry bark, but over the following decades it began to mint its own copper currency. By 1633, rulers in Korea adopted a currency called the “mun,” and several mints around the country were established.
In 1892, Korea issued the yang currency, which was the first currency of the country to be subdivided into units of 1/100. South Korea’s present currency, the won, was first introduced in 1902 at a rate of five yang to one won. It lasted until the invasion of the Japanese and the beginning of the Japanese colonial period in Korea in 1910. The origin of the word won is thought to be related to the Chinese yuan, as well as the Japanese yen, meaning “round coin.”
During Japanese reign in Korea, Japan ordered the circulation of the yen in Korea on par with the won, and the yen became the standard currency in Korea until the end of the Second World War. At the end of WWII, Korea was divided into two territories separated by a border at the 38th parallel.
In 1945, under an agreement established at the end of the war, the Northern region was ruled by a communist government established by the Soviet Union, and became North Korea. The Southern region was ruled under a Democratic system of elections and became South Korea. The intent of the international community was to see the two countries re-united, but they remained separate because of international differences during the Cold War period.
Both countries, however, once again adopted the won as their official currency, and thus emerged the North Korean won and the South Korean won. The won was reintroduced in South Korea in October 1945 at a fixed value of 15 per one U.S. dollar, and the country established its central bank, the Bank of Korea, in 1950.
Due to inflation, South Korea replaced the won in 1953 with the hwan at a rate of one won to 100 hwan. The hwan was also pegged to the U.S. dollar, and this lasted until 1962, when the won was reintroduced at a rate of 1 won to 10 hwan.
South Korea maintained the dollar peg until the 1980s when the dollar was replaced by a basket of currencies in order to facilitate the country’s aspirations toward broadening global trade. In the late 1990s, however, the South Korean government opted to allow the won to float freely against other major world currencies under the influence of the Asian currency crisis.1)Retrieved 29 December 2015 http://www.nber.org/chapters/c8621.pdf
Monetary policy in South Korea is determined by the Bank of Korea’s Monetary Policy Board. The board holds meetings scheduled once per month to set the country’s base interest rate.
The Bank of Korea uses inflation targeting as its monetary policy framework, aiming to use calibration of the interest rate to maintain the country’s consumer price index at a predetermined target over a three-year period. For the period of 2016-2018, the bank has set an inflation target of 2%, lowering the target from a previous range of 2.5% to 3.5%.2)Retrieved 29 December 2015 http://www.wsj.com/articles/bank-of-korea-to-lower-inflation-target-to-2-for-2016-2018-1450227603
The Bank of Korea’s Monetary Policy Board says it aims to meet its objective of obtaining price stability over a “mid-term horizon” and applies a “look-at-everything approach … taking into account domestic price movements, the economy, financial and foreign exchange market conditions, changes in the flow of the world economy,” among other factors.3)Retrieved 29 December 2015 http://www.bok.or.kr/broadcast.action?menuNaviId=37
Two weeks after each policy meeting, the Monetary Policy Board releases the minutes of the meeting to help the public understand its decisions and enhance the transparency of monetary policy.
Economy Of South Korea
South Korea is the 12th-largest global economy ranked according to its gross domestic product.
The country has undergone a transformation since the 1970s from an underdeveloped economy into a highly industrialised and diversified economy with strong growth and integration with global trade.
To achieve this, the government promoted the import of raw materials and technology at the expense of consumer goods, and it encouraged savings and investment over consumption. Its major industries include electronics, telecommunications, automobile production, chemicals, shipbuilding and steelmaking. And in 2004, the country’s nominal GDP surpassed US$1 trillion.4)Retrieved 29 December 2015 https://www.cia.gov/library/publications/the-world-factbook/geos/ks.html
South Korea’s main exports include semiconductors, petrochemicals, automobiles, auto parts, ships, wireless communication equipment and computers. Principal imports include crude oil/petroleum products, semiconductors, natural gas, coal and steel. Significant agricultural products found in the country include rice, root crops, barley, vegetables, fruit, cattle, pigs, chickens, milk, eggs and fish. South Korea’s main trade partners are China, Japan, US, Saudi Arabia, Qatar, Hong Kong, Singapore and Germany.5)Retrieved 29 December 2015 https://www.cia.gov/library/publications/the-world-factbook/geos/ks.html
Economically, the country faces challenges such as an aging population, scarcity of new workers in the labour market, reduced competition among its large conglomerates and a heavy reliance on exports, which account for about half of GDP.6)Retrieved 29 December 2015 https://www.cia.gov/library/publications/the-world-factbook/geos/ks.html
Foreign exchange and financial trading in South Korea is regulated by the Ministry of Strategy and Finance, the Bank of Korea, the Financial Supervisory Commission, the South Korean Financial Supervisory Service and the Seoul Foreign Exchange Market Committee.
Following the Asian currency crisis in 1997, South Korea eased its foreign exchange laws, replacing its Foreign Exchange Management Law with the Foreign Exchange Transaction Act. The Korean government nonetheless established measures to curb capital flight and international money laundering that could result from liberalised regulations.
Under the current laws in effect, the government reserves the right to impose restrictions such as requiring foreign investors to obtain prior approval from the Minister of Finance for acquisition of local securities or for the repatriation of interest, dividends or sales proceeds arising from Korean securities. Those restrictions can be imposed as the result of certain emergency circumstances such as “sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilising the balance of payments or a substantial disturbance in the Korean financial and capital markets.”7)Retrieved 29 December 2015 http://www.korealaw.com/sub/information/boardView.asp?brdId=investment&brdIdx=34&gotopage=1&search=&search_string
Major South Korean Won Currency Pairs
The South Korean won is commonly traded with several major currencies, including USD, AUD, CAD, EUR and JPY.8)Retrieved 29 December 2015 http://www.isda.org/publications/pdf/Currency-Pair-Matrix.pdf
Won Bills And Coins
Since its introduction, the won currency has been issued as coins and paper money. South Korea’s currency is printed by the national mint, known as the Korea Minting and Security Printing Corporation. Coins of a value of as small as 1/100th of a won (0.01 won) have been issued in the past, but the denomination is more currently found only in currency exchange rates. Coins of ₩10, ₩50, ₩100 and ₩500 are commonly used.
The Won Around The World
South Korea’s won is a fully convertible currency. The country is a participant of the Chiang Mai Initiative, a US$240 billion currency swap arrangement among 13 countries, including members of the Association of Southeast Asian Nations, China and Japan.
In 2015, it allowed a 14-year old, US$10 billion bilateral swap agreement with Japan to expire. At the same time, it signed an agreement with China to allow direct conversion of the won to the Chinese yuan. Additionally, South Korea has signed free trade agreements with China, the U.S. and the E.U.
Meanwhile, the country has been involved in discussions to participate in the Regional Comprehensive Economic Partnership trade talks among Asian countries and the Trans Pacific Partnership with a group of Asian and Western Hemisphere trade partners.9)Retrieved 29 December 2015 https://aric.adb.org/fta-country
Where Is The Won Today?
Under pressure from widened current account deficits, elevated debt and diminished confidence in regional banking institutions, several major currencies in Asia were forced to weaken in 1997, beginning with the Thai baht in July of that year.
After a succession of devaluations in neighboring countries, South Korea was forced to float its currency in December 1997, allowing a weakening of more than 50% against the dollar. With the crisis, the country signed on to a US$60 billion bailout package with the International Monetary Fund. It called for structural reforms and market liberalisation measures. In subsequent years, the country’s exports improved and economic growth recovered to rates of as high as 9%.10)Retrieved 29 December 2015 https://www.imf.org/external/np/seminars/eng/2006/cpem/pdf/kihwan.pdf
South Korea was later hit by the effects of the global economic downturn in 2008, but it has since seen a recovery under the beneficial influence of structural reforms and recent growing adherence to regional and global free trade initiatives. Amid this scenario, the won has traded within a range of 1,050 to 1,200 to the dollar from 2010 to 2015. The Bank of Korea has lowered interest rates in an effort to stimulate the economy, but it has signaled a commitment to maintaining “price stability” over the medium term.11)Retrieved 29 December 2015 http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1041&context=ealr
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|1.||↑||Retrieved 29 December 2015 http://www.nber.org/chapters/c8621.pdf|
|2.||↑||Retrieved 29 December 2015 http://www.wsj.com/articles/bank-of-korea-to-lower-inflation-target-to-2-for-2016-2018-1450227603|
|3.||↑||Retrieved 29 December 2015 http://www.bok.or.kr/broadcast.action?menuNaviId=37|
|4, 5, 6.||↑||Retrieved 29 December 2015 https://www.cia.gov/library/publications/the-world-factbook/geos/ks.html|
|7.||↑||Retrieved 29 December 2015 http://www.korealaw.com/sub/information/boardView.asp?brdId=investment&brdIdx=34&gotopage=1&search=&search_string|
|8.||↑||Retrieved 29 December 2015 http://www.isda.org/publications/pdf/Currency-Pair-Matrix.pdf|
|9.||↑||Retrieved 29 December 2015 https://aric.adb.org/fta-country|
|10.||↑||Retrieved 29 December 2015 https://www.imf.org/external/np/seminars/eng/2006/cpem/pdf/kihwan.pdf|
|11.||↑||Retrieved 29 December 2015 http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1041&context=ealr|