As China’s central bank let the country’s tightly controlled Chinese currency, or yuan, see a big drop, the won-dollar exchange rate skyrocketed, which means that the Korean won depreciated.
On Aug. 11, the won against the dollar in the Seoul Foreign Exchange Market increased by as much as 21 won (US$0.02) to 1,177 won (US$1) from 1,156 won (US$0.98) in early trading. This is the biggest one-day rise in four years after the European debt crisis in 2011.
This is largely due to the fact that the People’s Bank of China set the official value of the yuan 1.86 percent weaker, at 6.2298, against the dollar on Aug. 11. The devaluation is the largest since China’s modern exchange-rate system was introduced at the start of 1994.
Accordingly, the dollar became strong in the Asian financial market, while the won became weak. The interpretation that China’s abrupt devaluation is a clear sign of mounting concern in Beijing that the country could fall short of its goal of roughly 7 percent economic growth this year also let the won get weaker.
Samsung Futures currency analyst Jeon Seung-ji said, “After the People’s Bank of China set the official value of the yuan weaker, the exchange rates of other currencies, including the Singapore dollar, against the dollar took a sudden rise as well as the won. Considering the fact that China can control the yuan to remain weak again in the future and China’s economy is more unstable than expected, there will be an upward pressure on the won-dollar exchange rate in the future.”