Exchange Rate Regime - Korea Essay Example | Topics and Well Written Essays - 1750 words

Exchange Rate Regime - Korea - Essay Example On May 3, 1964, there was abolition of the official rate of Korean currency whose official rate was Won (W) 130.00 per U.S. dollar with an establishment of a unitary floating system was established on a basic rate of around W 255.00 per US dollar. There was also introduction of foreign exchange certificates that were issued by the Bank of Korea against foreign currencies that could be sold in a free market. In November 1964, there was extension in the foreign exchange certificate system for covering practically foreign exchange dealings. With the establishment of fluctuating certificate rate system in the year 1971, there has been dynamic depreciation in the Korean currency. With the devaluation in US dollar there has been reduction in the gold content of Korean currency by a percentage of 7.89%. In the month of February, the currency of Korea established link with the U.S. dollar was being controlled and there was establishment of a floating exchange rate regime ( a regime where the exchange rate is freely determined by the foreign exchange market). Running a single currency peg against the US dollar there was introduction of multiple currency basket peg in Korea in 1980.The effective rate was associated with SDR (special drawing rights) along with the combination with basket of the currencies of the major trading partners of South Korea and they are namely USA, Japan, Germany and Canada. From the year 1989, the exchange rate of Korea was being allowed to fluctuate within a percentage range against the basic rate. In the month of March 1990, there was replacement of effective rate by a market average rate (MAR). There was a managed floating exchange rate regime with determination of market forces in the interbank market and the Seoul Foreign Exchange Market. Under the system of MAR, there were fluctuations in currency of Korea being restricted within a narrow band.