The South Korean Won – a Guide for Traders
The present currency of South Korea is the Won, symbolised by ₩ and with a Forex code of KRW. At the moment there are ₩685 trillion in circulation with around US$2.2 billion being traded each day and approximately US$560 billion traded each year on the money markets. The Won is under the regulation of the South Korean Central Bank who issue coins representing single Wons and banknotes in denominations of ₩1000, ₩5000, ₩10,000 and ₩50,000. South Korean monetary policy is made by the Monetary Policy Board of the Bank of Korea who hold monthly meetings in order to set the base rate of interest. Inflation targeting is the Bank of Korea’s framework for its monetary policy and calibration of the rate of interest is used to maintain the consumer price index in the country to a predetermined target across a 3 year period. During 2016 to 2018, the Bank of Korea have set their inflation target at 2%, which is lower than the target rate set for the previous three year period. Their approach takes into account the country’s economy as well as market conditions for foreign exchange, flow changes in the world economy and domestic price movements. The minutes of each Monetary Policy Board meeting are released a fortnight later in order for the public to gain a better understanding of the decisions taken. The Won is known to be a fully convertible currency and South Korea participates in the Chiang Mai initiative – a currency swap arrangement between 13 countries to the amount of US$240 billion. Recently, South Korea have forged an agreement with China which permits direct conversion of the South Korean Won into Chinese Yuan and they have also signed free trading agreements with the EU, the United States and China.
The Won – A Short History
The Korean peninsula has been through many different currencies since the first time it was unified under a single government over 2000 years ago. The Won was first launched in 1902 while the Korean empire were in power, and was adopted again following the Second World War at the time when the country took its current form. The first known currency in South Korea dates back to around the 3rd century BC when metallic tokens were exchanged, however the first coins to be used date back to about 996AD when the Goryeo Dynasty was in power. When the Joseon dynasty overthrew this dynasty in 1392 they established a currency of their own using paper notes which were printed on mulberry bark. In the years that followed, copper coins were minted and in 1633 a currency known as the “mun” was introduced. The Yang was the currency which followed next in 1892 with the Won being brought into being in 1902. When the Japanese invaded and launched the Japanese Colonial Period in 1910 the Won went briefly out of use. It is thought that the word “won” may be derived from the words “Yuan” relating to the Chinese currency and “Yen” from the Japanese form of currency. When the Second World War came to an end, Korea was split into 2 territories with the North being ruled by the Soviet Union established communist government and the South being ruled under a system of democracy although both retained the Won as their official form of currency.
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In October 1945, the Won was once more introduced into South Korea and the Bank of Korea was established as the nation’s central bank in 1950. Because of inflation, the Won was replaced briefly in 1963 with the Hwan which was pegged to the United States Dollar but in 1962 the Won was once more introduced. In the 1980s, the Won was depegged from the Dollar and was instead replaced by a basket of international currencies to help the country to broaden its global trading opportunities and towards the end of the 1990s, the government decided to allow the South Korean Won to become a free floating currency.
Information About the South Korean Economy
The economy of South Korea is the twelfth largest in the world in terms of its GDP. Since the 1970s, the country has been through a huge transformation, taking the economy from an underdeveloped state into one that is diverse and highly industrialised bringing strong growth together with integration into a global trading environment. This has been facilitated by the government’s promotion of the importation of technology and raw materials instead of consumer goods, encouraging investment and savings over consumption. The major industries of South Korea include automobile production, telecommunications, electronics, shipbuilding, steelmaking and chemicals. The GDP of the country is now more than US$1 trillion and its main exports comprise petrochemicals, semiconductors, ships, auto parts, computers and wireless communication equipment. Primarily imports include natural gas, steel, coal and crude oil and petroleum products. The nation also produces a number of important agricultural products such as vegetables, cattle, fish, eggs, chickens, milk and rice. The country’s major trading partners are Japan, China, Saudi Arabia, the USA, Hong Kong, Germany, Singapore and Qatar. There are some economical challenges which face South Korea which include the ageing population and scarcity of younger workers and a strong reliance on exports as they account for around 50% of the country’s GDP.