The Bank of Korea and the Bank for International Settlements on Feb. 24 said Korea's real effective exchange rate rebounded for the first time in seven months. (iClickArt) (Unauthorized reproduction and redistribution of this image is prohibited under copyright law.)

By Lee Dasom

The real value of the domestic currency has risen for the first time in seven months.

The purchasing power of the KRW, which had fallen to levels seen before the 2008 global financial crisis, is considered to have started recovery, indicating positive signals for the economy's external credibility and the stability of import prices.

Domestic media outlets including Yonhap News said the Bank of Korea and the Bank for International Settlements on Feb. 24 released a study saying the real effective exchange rate (REER) reached 86.86 last month, with the base level being 100 in 2000.

The KRW's REER fell for six straight months from 92.48 in June last year to 86.36 that December, the lowest in 16 years since 85.47 in April 2009 during the global financial crisis. This showed how extremely undervalued the currency was in global markets.

The rebound is thus considered to show the effective bottoming out of the KRW and the start of its normalization process.

The report said this was the result of a years-long trend of pressure on the KRW's value to depreciate stemming from the weakening currencies of China and Japan and the strong USD due to a robust American economy.

The JPY's REER plunged to 67.73 last month, its lowest since Japan adopted a floating exchange rate system in 1973. Since reaching 75.81 in April last year, the figure fell for nine consecutive months until last month.

The KRW, which was under rising pressure to appreciate against the USD due to the JPY's depreciation, has recently shown relative stability and traded in the 1,430 range on Feb. 24.

REER indicates the purchasing power of a currency relative to those worldwide, gauging the relative exchange rate between a base year and the current period. A value above 100 indicates overvaluation compared to the base year while one below indicates undervaluation.

dlektha0319@korea.net