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The won is now accepted at banks and bureaux de change in Europe, the U.S., Australia and New Zealand, as well as China, Japan and Southeast Asia. This is welcome news for the 11.6 million Korean travelers overseas. But travelers rarely get a good deal: the buy-rate tends to be low and the sell-rate high. The reason for the often bad exchange rates abroad is a complicated distribution network dominated by foreign banks.
¡ß Profit margins at four stages
A Bank of Korea official explains that won are bought mainly by foreign banks based in Hong Kong, which then resell them to banks and bureaux de change worldwide. In fact, W27 billion (US$1=W923) is exported to Hong Kong alone, accounting for 70 percent of the total amount of W39.3 billion that went overseas during the first quarter of the year. A Korea Exchange Bank staffer says, "HSBC and the Bank of America dominate most of the won market around the world, with the exception of Japan and China. I understand that these banks earn more than 10 percent in profit margins when re-selling won to foreign banks or bureaux de change in third countries."
In other words, the won can pass through four stages -- domestic banks, global investment banks based in Hong Kong, banks in third countries, and local bureaux de change. At each stage, middlemen buy or sell won for a profit, with the result that consumers are buying or selling it at a much greater loss abroad than they do here.
¡ß Need for more overseas branches
To prevent the rip-off exchange rates abroad, it is necessary to cut out the middlemen, experts say. The overseas branches of Korean banks trade won at much better prices because they buy them direct from their head offices. For example, the Paris branch of Korea Exchange Bank bought won at a rate of W1,198 for 1 euro as of Aug. 1, a good W150 more than at a private bureau de change.
But to most consumers, that is pie-in-the-sky. Since April last year, when the government liberalized the export of won for overseas exchange, domestic banks have expanded target areas to some 10 countries -- Japan, China, the U.S., the U.K., France, Australia, New Zealand, the Philippines, Hong Kong, and Vietnam. But their performance has proved minimal due to their low recognition and weak overseas network of branches.
In the case of Woori Bank, 25 branches in seven countries offer won exchange services. But over the past year, all these branches together have exchanged won on just about 4,800 occasions -- once or twice a day at each branch. Domestic banks are in fact losing the overseas won market to their foreign rivals due to their weak global branch network. As a result, the won¡¯s globalization has not benefited consumers much.
Nam Kang-woo, the deputy chief of Korea Exchange Bank's overseas division, said, "The way to minimize your exchange loss is to exchange the won for foreign currencies at home as much as possible and to take foreign currencies instead of won when claiming tax deductions in foreign countries."
(englishnews@chosun.com )
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