Won still weak by BIS measure despite recent gains, BOK chief says

Bank of Korea Governor Shin Hyun-song said Thursday that despite the won-dollar exchange rate recently falling to the 1,320-won range, the currency "is still weak when viewed through the BIS effective exchange rate."

Speaking at a monetary policy press briefing that morning, Shin said the elevated exchange rate seen in early summer "had considerably abnormal aspects." He added that the won's subsequent rapid decline and stabilization represented "the process of reversing that abnormal situation."

"Whether you look at the won-dollar rate or other effective exchange rate benchmarks, it is true that the won is weaker now than in previous years," Shin said. He noted that the BIS effective exchange rate index — which uses a trade-partner-weighted average — stood at around 89 when the exchange rate was 1,480 won at the end of August. "Even by the BIS effective exchange rate, it is still weak," he said.

The real effective exchange rate measures a currency's purchasing power relative to those of its trading partners. A reading above 100 signals strength; below 100 signals weakness.

Shin also said a stronger won helps curb import price inflation and boosts household purchasing power, which can ease inequality in Korea. "When the exchange rate strengthens by around 10 percent, it has an effect of more than 0.4 percent on the purchasing power of vulnerable households — a larger impact than on the top income quintile," he said.