Increase in the value of the Korean won; Lessons Nigeria could learn

the korean won it is currently the best performing coin in Asia and one of the best in the world.

The value of the currency rose 10% against the US dollar, recovering from a 13-year low. This month alone, the won has strengthened against the dollar by 6%. It hit 1,020 won to the US dollar on Friday, its highest level since August 2008.

Meanwhile, Geoff Kendrick, the FX strategist at Morgan Stanley, has forecast a won rise to W950/$, which would be the highest since January 2008. Its historical record level is W920/$, reached in December 2006.

This has not been the case in the past. Sometimes he won it has been among Asia’s worst performing currencies, especially during the region’s financial crisis in the late 1990s. So what is it about the Korean economy that is making the won perform so well? What can Nigeria learn from that country?

Foreign investments: Portfolio investment has been an important factor guiding the victory. Last week, global investors poured $588 million into Korea stock funds, according to data released on Friday by fund flow tracker EPFR, the FT says.

  • Bond buying has also been strong, as sovereign wealth funds and foreign central banks have added billions of dollars to their Korean debt holdings this year.
  • With the economies of the West showing signs of picking up, export-driven markets in Asia, notably Korea and Taiwan, are also benefiting from higher demand for goods..
  • Persistent trade surpluses in South Korea and deficits in the US kept the USD/KRW exchange rate within a relatively tight range for a decade starting in 2010.

Bad leadership: The right investment environment, reduced policy change, and issues related to the repatriation of funds in Nigeria would attract much-needed investment and foreign exchange. These would strengthen the local currency.

The elected national coordinator of the Nigerian Independent Shareholders Association, Mr. Moses Igbrude, told Naijaonpoint that the main problem with Nigeria’s currency is government policies. Igbrude said that Nigeria would not have any problem with the economy, except for the government.

  • “If Nigerians can get the right leadership, everything will be fine,” he said.
  • Igbrude also said that Nigeria’s problem is low productivity and that the country’s low productivity can be attributed to poor leadership. He said that the currency would be strong if production was high, adding that by production he did not mean that Nigeria should produce everything, but should focus on its comparative advantage. He stressed that Nigeria must produce more to strengthen the currency, but that it must be driven by good leadership.
  • Paul Nwafor, an investment analyst at Capital Assurance, said investors are buying Korean bonds and increasing portfolio investment because they were confident in the country’s stable policies and did not expect somersaults in government policy. He added that the Nigerian government needs to create the right environment for trade to go smoothly, which would improve productivity.
  • “It is cheaper to transport a container of goods from Europe to America than from Lagos to Ibadan”, he said.

Dr. Felix Echekoba, a professor in the Department of Banking and Finance at Nnamdi Azikiwe University, Awka, said that so much money in circulation chases fewer assets in Nigeria, which is one of the main causes of a weak naira. He said that such a situation causes inflation and weakens the currency, especially when the economy is not producing commensurate goods and services.

According to Global Exchange Hong Kong, in 2006, many won banknotes in circulation were being counterfeited. Counterfeiting of the 5,000 won note was such a big problem that it led the government to introduce a new series of notes with better security measures.

Security features: Korean currency now includes 3D color-changing holograms and portrait watermarks. Newly minted coins also include a substance that makes them easy to detect against counterfeit coins.

  • In his statement on the redesign of the N200, N500 and N1,000 notes on October 26, CBN Governor Godwin Emefiele indicated that criminal elements possess sophisticated printing machines that may have unauthorizedly printed banknotes, thus creating the situation of too much money chasing too few goods, which is a clear recipe for higher inflation and, by extension, a weaker currency.
  • Furthermore, with 80% of the country’s currency in circulation outside the banking system, it is difficult for the monetary authority to make any appreciable defense of the naira.

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