The Currency Trader’s Guide to Investing in Korean Won
The primary reason investors are interested in South Korean currency is due to its impressive economic success in recent years. This rapid growth may appear perplexing to outsiders because the country is not rich in any natural resources. However, South Korea has not relied on agriculture or mining natural resources for building its wealth. Instead, it’s intense focus on technological innovation has resulted in the country becoming a dominant player in global technological development. In fact, technology is viewed with such enthusiasm by the educated population that the government has made Wi-Fi available free throughout most of Seoul, the capital city, to encourage tech-literacy and innovation.
5 Things Currency Traders Should Know About Investing in the Korean Won
There are five primary reasons why the Korean won to U.S. dollar ratio looks so promising and why many investors are interested in the Korean won:
- The country has a solid economy
- The Korean won is a weak currency
- The Korean currency has experienced recent value surges
- There has been little government intervention in Korean money
- There has been a reduction in political tension with North Korea
Although past economic performance is not a guide to future economic performance, let us take a closer look at how these five factors are nudging many investors to view Korean money in a favorable light.
5 Big Reasons People are Investing in the Korean Won
1. The country has a solid economy
Today South Korea ranks as the fourth biggest economy in Asia. With a GDP of about $30,000 per head, it compares with a population as prosperous as France.
Although it may appear as if South Korea is an overnight success, this is an illusion based on massive media coverage of the country during the last Winter Olympics. The country’s economic miracle is a result of long-range planning. In fact, it’s remarkable transformation from an agricultural economy to the world’s eleventh largest economy started as far back as the 1960s.
3 Reasons for the Economic Miracle
Three primary reasons for this “economic miracle” from an agrarian-based economy to a technology-based one has been due to a focus on export, an improvement in the business infrastructure, and government and monetary policies designed to foster a culture of innovation.
First, South Korea restructured itself to be more open to foreign markets. As a result, it is now one of the world’s top ten exporters. In 1995, its exports in relation to its GDP was 25.9 percent. By the first decade of this new century, it had risen to 56.3 percent.
Second, South Korea placed an emphasis on improving its business infrastructure. In 2018, South Korea, according to the World Bank’s Ease of Doing Business index, ranks fourth in the world. By comparison, the United States ranks sixth. Essentially, what this ranking means is that in South Korea, it is easy to start a business, get electricity, obtain credit (including credit card and debit card usage), trade across borders, enforce a business contract, and resolve insolvency. Tourism is on the rise, and so is the use of travel money in the form of cashier’s checks and traveler’s checks. Combined, these factors create a perfect storm to encourage economic growth through communication, production, and capital investment.
Third, policies designed to foster a culture of technological innovation aim at cultivating growth through inventions, development, and technology. One manifestation of this policy is that South Korea spends the biggest slice of its GDP on R&D. By comparison, the United States, considered one of the global leaders in research and development, spends far less. From 1996 to 2015, South Korea’s research and development budget grew to 88.5 percent. In that same period, the United States’ only grew by 14.4 percent.
2. The Korean Won is a weak currency
It may seem somewhat paradoxical that South Korea has a weak currency since it appears to have a rapidly growing economy. However, this is not an accident or a result of fortuitous events. Instead, Korean currency has intentionally been kept low. It is weak by design.
While economists once believed that a strong currency reflected a strong economy, many countries now prefer to let their currencies fall as a strategy to attract foreign investments. Additionally, a weak currency also encourages more domestic jobs and larger product sales overseas.
What Is Korean Won Exchange Rate?
For the purpose of this article, we are referring to South Korean won and not North Korean money. But it is worth noting that the exchange rate of North Korean won is slightly different. 1 US dollar equals 900 North Korean won.
Currently, US dollar to Korean won exchange rate is 1 United States dollar is equal to 1131.33 South Korean won. If you have Korean coins, 100 jeon = 1 won note, though the jeon is no longer used.
If you were to buy a large number of South Korean won, here is how the won to USD conversion would look like:
- 1000 Korean won to USD is 0.88
- 5000 Korean won to USD is 4.42
- 10000 Korean won to USD is 8.84
- 50000 Korean won to USD is 44.20
Looking at the dollar to Korean won ratio, you can clearly see that you can buy a large amount of the Korean money. When you look at the USD Korean won exchange rate you can see how 1000 won to USD, 10000 won to USD, 50000 won to USD is remarkably low. Start thinking in terms of how a Korean won to USD exchange rate could work out well for you—because if the exchange rate of 1 KRW to USD is so favorable, it’s easy to start speculating in terms of 1 million won to USD or even 10 million won to USD.
A Brief History of the Korean Won
A review of Korean won history reveals three primary reasons why the won to dollar rate is so low:
First, the Korean central bank has intervened in the FOREX markets when the won was becoming stronger.
Second, the government has been encouraged to maintain their policy of keeping the Korean won low after electronic multinationals like Samsung took away business from Sony and how carmakers like Hyundai took away business from Toyota. South Korea’s success in winning over the competition is not due to a decline in the quality of Japan’s world-class manufacturing standards. It was simply a result of the yen being the stronger currency.
Third, a weak currency has attracted the attention of foreign institutional investors, who see the Korean won as a hedge against a debt crisis in the eurozone.
3. The currency has experienced recent value surges
Despite many efforts to keep the South Korean won low, the strong economy has continued to strengthen the currency. This has been particularly noticeable against the yen.
As a result, a stronger won has put a dent in South Korea’s export success and Korea’s total export will continue to decline. Currently, as of October 10th, 2018, 1 Japanese yen is equal to 10.03 Korean won. By comparison in 2012, 1 Japanese yen was equal to 14 to 14.5 Korean won.
As a currency trader, this narrower gap between the two currencies could work in your favor depending on your trading strategy, especially if you expect the Korean won to appreciate even further.
However, from South Korea’s perspective, the country’s exports have been reduced and leading South Korean corporations have missed their expectations for fourth-quarter earnings. This newer, stronger Korean won is now beginning to take its toll.
Will the Korean Won Get Stronger?
Although the Korean won was weak for a long time, all historical trend graphs suggest that the Korean won will only continue to get stronger.
4. There has been little government intervention in Korean money
Although it’s possible that the South Korean government will intervene to weaken its currency, investors are continuing to buy Korean won.
There are two reasons for this optimistic strategy:
First, based on the country’s past monetary policy, the South Korean government has been reluctant to intervene because it does not want to be perceived as manipulating its official currency to influence the South Korean won to USD foreign exchange rate, or the South Korean won to the Japanese Yen foreign exchange rate.
Second, it’s possible that even if the government did intend to do something about the stronger currency, the government may not be able to buck the trend of a much more robust economy, which is the primary driver for the increasingly stronger Korean currency.
5. There has been a reduction in political tension with North Korea
One of the most difficult trials South Korea has faced for a long time has been the existential threat of a nuclear war with North Korea. This fear was aggravated as North Korea increased their nuclear missile testing.
However, a turn for the better occurred during the Winter Olympics in PyeongChang. Military tensions in the Korean Peninsula decreased after a North Korean delegation arrived at the Winter Olympics.
More recently in the news, talks between North and South Korean leaders have defused the political situation even more, with the Trump administration also entering into negotiations with North Korea for nuclear disarmament. Global media reports are optimistic as are reports from South Korea’s local Yonhap News Agency.
Tips on How to Research Korean Won to US Dollar Exchange Rates
Here are some tips to help you with your research:
- When using foreign exchange charts or trying to convert Korean won to USD using a foreign currency converter, remember that the South Korean won symbol is an uppercase W with two horizontal lines across it.
- When reading tables or the coordinate axis of financial graphs, you might see the dollar to won designated as USD to KRW or won to dollar designated as KRW to USD.
- Remember that the South Korean won to USD exchange rate is never stable, but always fluctuates, so make sure that you get the latest rates before buying Korean won.
Key Questions to Ask When Researching Korean Won
When doing your own fresh research in the FOREX market, here are some key questions to ask about the Korean won:
- Will Korean won get stronger? Will the Korean won go up?
- Will Korean won drop?
- What is a Korean won in US dollar?
- What can 1000 Korean won buy today?
- What can 10000 Korean won buy today? What is 1000 won in US dollars?
- Where to buy Korean won?
- Where to sell Korean won?
- Where to exchange Korean won? Where to exchange Korean won to US dollar?
We can help you with much of this information here on Treasury Vault, particularly when it comes to the process of buying and sell Korean won and understanding the latest exchange rates.
All things considered, there are strong reasons to invest in the Korean won. South Korea has a solid economy based on technological innovation and a weak currency that is slowly becoming stronger. Also, there is an apparent little show of interest by the Korean government to manipulate the currency. Along with a reduction of hostilities between North and South Korea, the opportunities to invest are currently optimal.
While the Korean won to USD ratio is unfavorable if you are a Korean investor, the USD to Korean won ratio really works well for you if you are an American investor. As a long-term investment, you could invest to hedge risk, you could invest because you see a financial opportunity, and you could invest because you want to diversify your portfolio.
Incidentally, besides helping you with buying Korean won here at Treasury Vault, we can help you purchase many other types of promising currencies. For instance, the Mexican peso appears to be making a comeback due to a new president Andrés Manuel López Obrador and the new USMCA, which is replacing the NAFTA agreement between the United States, Mexico, and Canada. We are experts at foreign currency and look forward to helping you.