Sorry for not replying to you earlier. Took me a while to come back to this posting as it’s gotten a bit buried. As I’ve told you before, if you have specific questions for me, get a hold of me through my xanga.

I don’t think the BOK needs to manipulate the money supply too much because the won has already got downward pressure as it is. In my opinion, central bank intervention into defense of the currency hinges on what commodity prices do. If they go down like the BOK and even the U.S. Federal Reserve think they will, then the BOK will let the won fall against the dollar.

Food futures are overpriced and will fall. Oil supply is increasing and oil futures should fall also (although long term oil prices will have upward pressure, but as it is $126 a barrel is too high right now).

So if commodity prices fall, then inflationary pressures will be eased, then deflating the won makes sense in 1) balancing out CAB by increasing trade and 2) increasing economic growth to relieve political pressure on LMB for his silly “747″ plan of 7% economic growth.

Lastly, a cheaper won also solves another problem, which is the lack of liquidity in financing markets in Korea. This is why the BOK has been so reluctant to cut interest rates. The last thing Korea needs are people borrowing more, because the central bank doesn’t have much more money to lend out. If borrowing in Korea increases, the money has to come from somewhere and where ever it comes from, it’s likely to affect Korea’s CAB and foreign currency reserves negatively. This is another reason why FDI is so important (insert Brendon Carr “I told you so” sarcastic comment here). There are clearly risks to foreign firms to put money into Korea. However, if the won deflates 20 or 30% and foreign investment firms see that as a temporary and opportunistic situation, they will take more of a “damn the torpedoes” attitude and take the plunge any ways. Investment growth coupled with currency arbitrage equals fat IRRs and happy limited partners.

So, Korea can expand its money supply enough to engineer won weakness. All this means is that the exporters get more won per export dollar, and so can keep Koreans working. That’s a good thing. But those same workers are going to pay for it, because the price of won weakness is domestic inflation.

You don’t get something for nothing.

That said, I just checked the BOK’s site, and the growth in money supply is indeed accelerating. But my amateur assumption is that the sudden switch to a negative trade balance in 2008 had more to do with the won’s sudden slide.

Bingo Boston_Rob.

If you were to ask Lee, Seong-tae a question or two what would you ask?

w/ LMB as president, is this really that farfetched?

FDI : LoneStar-style persecution
Tourism : More golf courses

it’s rather:

chaebol protection : LoneStar-style persecution
chaebol executives : More golf courses

Korea has the best politicians money can buy (and Korea is not unique by a long shot).