[Teheran-ro] Warning Lights in the Era of a 1,500-Won Dollar

"How much more are prices going to rise now..."
Every time the exchange rate climbs, a sigh comes out first. The won–dollar exchange rate briefly rose above 1,500 won per dollar during trading, the first time since the 2009 financial crisis. A level long regarded as a psychological resistance line has just been breached. Before any grand economic outlook, the first thought that flashes through my mind is, "In the end, my wallet is going to get thinner again."
Once a high exchange rate starts to become entrenched, the shock spreads from financial markets into the real economy. The first channel is import prices. The South Korean economy depends on overseas sources for most of its energy and raw materials. When the won weakens, imports become more expensive in local currency even if international prices stay the same, and companies cannot avoid higher production costs. That burden is ultimately passed on to product prices.
In this way, a strong dollar gradually pushes up consumer prices with a time lag. It shows up not only in grocery bills, but also in electricity and gas charges and the prices of all kinds of consumer goods, spreading across everyday life. There is a structure in which a rising exchange rate soon turns into higher inflation. Wages stay the same, but the pressure from living costs snowballs.
This pattern is nothing new. During the IMF Crisis, the Global Financial Crisis (GFC), and the COVID-19 pandemic, a weak won drove up both import prices and consumer prices. The burden on households and businesses grew heavier, and financial authorities had little choice but to respond forcefully, including by raising interest rates.
The current situation is not structurally different. A globally strong dollar has coincided with rising international oil prices and geopolitical tensions in the Middle East, heightening external uncertainty. If these external factors persist, downward pressure on the won will not be easily relieved. The longer a high exchange rate lasts, the more inflationary pressure builds up.
The exchange rate is determined in the market where demand to buy dollars meets the supply to sell them. But it is the role of policy to soften the blow that a high exchange rate deals to the real economy. The Government of South Korea and foreign exchange authorities must not dismiss the current situation as a mere temporary market fluctuation. A comprehensive response is needed, from managing import prices and inflation to sending clear messages on exchange-rate stability.
It is especially important to prepare countermeasures in advance in case the exchange rate keeps rising. Above all, the market and the public need a clear signal that "We will not leave exchange-rate risks unattended."
No one knows yet whether the current rise in the exchange rate will remain a short-term swing or mark the start of a new high-rate environment. One thing, however, is clear. You can leave the level of the exchange rate to the market, but you cannot leave the aftermath of a persistently strong dollar to the market as well. That shock is felt first and foremost in people’s wallets. What is needed now is not a wait-and-see stance, but preemptive action to minimize the fallout.
imne@fnnews.com Reporter Hong Ye-ji Reporter