Will the exchange rate in the 1,500 won range become a reality?Depositor Protection Up to 100 Million Won

■ Host: Jeong Chae-woon Anchor
■ Telephone connection: Lee In-cheol, director of the Good Economic Research Institute

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information. Please specify [YTN Newswide] when quoting.

[Anchor]
The won-dollar exchange rate is soaring to its highest level since the 2009 financial crisis. Stock markets such as KOSPI and KOSDAQ also plunged, and political instability such as martial law and impeachment continues to be reflected in the market. Let's take a look at the week's economic issues. Lee In-cheol, director of the Good Economic Research Institute, is connected. Hello. It was last Friday. The exchange rate has risen for four consecutive trading days, reaching its highest level in 15 years and nine months since March 2009 during the global financial crisis. How long do you think this high exchange rate will continue?

[Lee In-cheol]
The recapture of the exchange rate surge is due to political uncertainty. On the 27th, the won-dollar exchange rate closed at 1467.5 won in the Seoul foreign exchange market. It once soared to 1,486.7 won during the day. It is the first time in 15 years and 9 months that the won-dollar exchange rate has exceeded 1,460 won based on the closing price since March 13, 2009, during the global financial crisis, and only twice in the past. During the 1997 financial crisis, we shot up to 1962 won. This is the third time after KRW 1570 during the global financial crisis in 2009. Deputy Prime Minister for Economic Affairs Choi Sang-mok said that half of the recent rise in the exchange rate was due to political uncertainty, but this time, the impeachment of Acting President Han Deok-soo triggered the exchange rate to soar.

As the first acting president in the history of the Republic of Korea led to impeachment, the distrust of Korean politics deepened. The remaining 20% is an external factor. A strong dollar is seen around the world ahead of the launch of the second Trump administration. Neither the euro nor the yen nor the yuan can check the dollar's strength. Due to Korea's economic structure, which is highly dependent on foreign countries, Korea is inevitably affected by exchange rate volatility compared to other countries. In this situation, the won's depreciation is greater than in countries at war, and the problem is that there are no clear factors to prevent the dollar from strengthening and the won from weakening.

[Anchor]
The exchange rate has risen by nearly 80 won since the martial law crisis. If the high exchange rate continues like this and political uncertainty continues as you said, won't the Korean economy continue to suffer?

[Lee In-cheol]
That's right. After the emergency martial law incident on December 3, foreign funds have deviated, and more than 3 trillion won has been reached. The exchange rate has soared by about 80 won so far.The prevailing view is that the rise in the exchange rate will continue for the time being. First of all, the high exchange rate is expected to lead to higher import costs such as energy, raw materials, and food, putting pressure on domestic inflation with a lag. If prices rise, consumers' real purchasing power will decrease, which will likely further dampen the domestic economy. The high exchange rate was also positive for exporters in the past. It led to strengthening price competitiveness, but now more companies have built local production plants than in Korea. In the case of domestic SMEs that import raw materials and make and sell intermediate goods, the cost burden is increasing.

In fact, there is an analysis that a 10% increase in the exchange rate reduces the operating profit ratio of large companies by 0.29 percentage points. In addition, companies with large debts borrowed in foreign currency, and the government, could face higher interest payments burdens, increasing financial risks. In particular, if the protectionism of the second Trump administration, which will be launched next month, begins in earnest, the exchange rate will inevitably rise further. In conclusion, a rise in the exchange rate is quite likely to deal a widespread blow to the Korean economy through rising import prices, increasing corporate costs, and financial market instability.

[Anchor]
In the meantime, Deputy Prime Minister for Economy Choi Sang-mok said he would take firm measures to stabilize the market in the event of excessive concentration in the financial and foreign exchange markets. What measures will be included in this?

[Lee In-cheol]
The government announced a plan to improve foreign exchange supply on the 20th. There are three main points of countermeasures. First of all, the government raised the national pension and foreign currency swap limits. We decided to expand the standard from $50 billion to $65 billion. The NPS expects to ease upward pressure on the exchange rate as it lessens the need to buy dollars directly from the market, and secondly, it has eased regulations on foreign currency loans for facility funds for large and small businesses to improve conditions for corporate foreign currency financing. This means that it will help companies more easily procure the foreign currency they need in foreign countries. This can reduce the risk of exchange rate fluctuations.

The third is to raise the forward exchange position limit for domestic foreign exchange. The forward exchange position limit refers to the upper limit on the size of foreign currency and forward contracts that banks can hold, which has the advantage of increasing liquidity in the foreign exchange market and responding more actively to exchange rate fluctuations. Of course, the government is coming up with measures and the market is directly or indirectly intervening.Even so, the won is under downward pressure as political instability factors are prolonged in a situation where economic fundamentals are not good. Even so, 1,500 won is about 10 won left, so breaking through this could cause a serious shock to the Korean economy as a whole. Ultimately, it became more important than anything else to resolve this political uncertainty and give confidence that the Korean economic system is working normally.

[Anchor]
After all, trust is important. On the other hand, the stock market has fluctuated. The KOSPI was in the middle of the day.Ma's 2400 line also collapsed. KOSDAQ also showed an unstable market. Likewise, should I say that political uncertainty and the impact of the strong dollar were large?

[Lee In-cheol]
That's right. The financial market, which had been stabilizing little by little after the emergency martial law and impeachment, was shaken again by the negative news of the impeachment of the acting president. The deterioration of investor sentiment due to political uncertainty and the weak won are affecting foreigners' Cell Korea. Over the weekend, the KOSPI barely maintained the 2,400-point level after collapsing at one point during the day due to selling by foreigners and institutional investors. If this situation continues, the KOSPI will inevitably fall for six consecutive months this year. This is likely to break the record for the longest decline in 16 years since 2008. There were only two or three cases where the KOSPI fell for more than six months earlier.

During the 1997 IMF bailout, there were only three global financial crises in 2008 when the dot-com bubble collapsed in 2000. If you look at the report card of the Korean stock market in 2004, it is at the bottom of the world. The KOSPI started at 2655 at the beginning of the year, down 2404 and 9.4% this year. The KOSDAQ is more serious. The KOSDAQ, which started at 866, plunged 665, 23%. As the Russian stock market at war has fallen 11% this year, the KOSDAQ drop rate is the lowest in the world and the lowest. After Russia, the KOSPI is third from last place. The world's largest stock market increase is Nasdaq. The Nasdaq is up more than 31% this year. Taiwan's stock market rose nearly 30%, the second-highest gain, and Japan's stock market rose more than 20%. China's stock market rose 14%, and Hong Kong's stock market, ELS and stock-linked securities surged nearly 18% this year alone. That's why Korean stocks are on sale at ultra-low prices in foreign media. One of the two stocks is a new low price, so KOSPI's PBR stock price net asset ratio is 0.8 times. It's a price that I've never experienced before. However, it is difficult to find good news other than low prices.

[Anchor]
While our stock market is on the decline, there is a steep rise. It's the price of gold. Wall Street in the U.S. predicted that gold prices would continue to rise next year. How do you see him?

[Lee In-cheol]
Gold price rally could continue next year. I'm forecasting 3000 dollars per ounce. This year, the price of gold has risen from $2071 per trion at the beginning of the year to $2,631 now, about 27%. It is the highest increase in 14 years since 2010, surpassing the 20% yield of the S&P index in the United States. But global investment banks, such as Goldman Sachs, J&P Morgan and Citigroup, are directing their 2025 gold price targets to $3,000, more than 10% higher than this year. There are three main reasons why gold prices will soar like this. There is high uncertainty surrounding the macroeconomic environment in the early days of the Trump administration in 2025.

Gold prices usually tend to rise when interest rates fall when inflation expectations rise. I think there is a high possibility that this scenario will develop. The second is the ongoing geopolitical risk. Demand for safe assets is bound to increase further due to the war in the Middle East and Ukraine and the U.S.-China conflict. The third is that central banks around the world continue to increase their gold holdings. China, in particular, is buying gold instead of reducing dollar-based assets in its foreign reserves.

Therefore, next year, gold prices will continue to rise 10% this year due to inflation, geopolitical risks, and rising demand from central banks, which will further strengthen its position as a safe asset, but the industrial aspect of gold, whether industrial demand will increase due to the global economy, and there is little industrial demand because it is not, is a factor limiting the rising factors of gold.

[Anchor]
We'll have to wait and see the flow of gold prices. This time, we're going to talk about companies. News that Shinsegae Group and China's Alibaba are joining hands this week stood out. Gmarket and AliExpress decided to join hands. Please point out the background as well.

[Lee In-cheol]
Shinsegae Group will form a joint venture with Alibaba International, a subsidiary of Alibaba Group. The joint venture planned to be established as early as next year is the so-called Gmarket and Alibaba Group's e-commerce platform. It is expected to be a structure with AliExpress Korea subsidiary. The investment ratio will be operated independently after the two companies incorporate their Shinsegae subsidiary Gmarket AliExpress Korea at 5:5. This decision is interpreted as a consensus between Gmarket, which is suffering from poor profitability, and China's AliExpress, which has recently been controversial in quality.

Shinsegae acquired Gmarket for more than 3.4 trillion won in 2021. Since then, Gmarket has continued to lose money for two consecutive years. There are mixed analyses on whether the cooperation between the two companies will work as a synergy. Having a strategic partner is positive, but domestic antipathy towards Chinese e-commerce is so great. In addition, there are many opinions that it will be difficult to create synergy due to anxiety factors such as personal information leakage. Attention is focusing on whether the joint venture will be able to reorganize the e-commerce market by attracting domestic consumers who are familiar with Coupang's rocket delivery when shopping online.

[Anchor]
Finally, let's talk about the amendment to the Depositor Protection Act, which passed the National Assembly plenary session last Friday. The deposit protection limit for financial institutions will increase from the current 50 million won to 100 million won, but this will change in 24 years?

[Lee In-cheol]
That's right. The depositor protection limit will be raised from 50 million won to 100 million won. It's been 24 years since 2001. The upper limit of the depositor protection limit has clear advantages and disadvantages. The advantage is that if a bank goes bankrupt or a financial accident occurs, more deposit protection is provided, which reduces financial consumers' anxiety. In particular, large-scale depositors' funds are reduced, contributing to financial market stability, but the problem is that the increase in depositor protection limits can increase the burden of deposit insurance premiums paid by financial institutions. In the long run, there is a high possibility that it will be passed on to consumers due to a rise in loan interest rates. However, since the implementation period is set by the Presidential Decree within a year, the specific application time is expected to be decided in consideration of next year's financial market situation.

[Anchor]
That's all for today's talk. I looked at the week's economic issues with Lee In-cheol, director of the Good Economic Research Institute. Thank you for talking today.

[Lee In-cheol]
Thank you.