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As gov't moves on exchange rates, experts worry about excessive intervention

Published: 09 Dec. 2025, 19:06 Updated: 09 Dec. 2025, 20:23

Dollar notes are held by a Hana Bank official at the bank's central Seoul branch in Jung District on Dec. 3. [NEWS1]

With the won stuck in the 1,470 range against the dollar, the Korean government is up in arms about the unfavorable currency market.

The Ministry of Economy and Finance is launching a task force to closely monitor foreign-currency holdings by exporting companies, while the Ministry of Health and Welfare is exploring the idea of the National Pension Service (NPS) issuing foreign-currency bonds — a first in its history. On Tuesday, the prime minister also held a rare meeting with the Bank of Korea (BOK) governor to discuss the state of the foreign exchange market.

Some experts have raised concerns that such aggressive interventions could infringe on corporate autonomy. In particular, the unprecedented proposal for the NPS to take on “dollar-denominated debt” is prompting worries about long-term risks to retirement funds.

Finance Ministry forms task force, targets exporters

The Finance Ministry plans to create a dedicated task force within its International Finance Bureau to oversee foreign exchange supply and demand, and reinforce personnel.

“The task force is being formed to monitor exporters’ foreign currency holdings,” said a ministry official on Tuesday. “We’re reviewing what data we’ll request from companies, and we're even considering policy incentives if necessary.”

While the ministry has previously stated its intent to monitor exporters’ foreign-currency flows, the new task force signals a stronger, more structured approach. The government will conduct regular assessments of companies’ currency conversion activity and overseas investments, suspecting that firms — anticipating further depreciation of the won — are holding on to dollars instead of selling them on the market.

The figures for Kospi, Kosdaq and local currency are displayed on a digital screen in Hana Bank's central Seoul branch in Jung District on Dec. 9. [YONHAP]

The task force is also expected to explore policy incentives for exporters. These include expanding policy funding limits and offering favorable interest rates through the Korea Development Bank and the Export-Import Bank of Korea for companies actively converting dollars or increasing domestic investment. Tax benefits are also under discussion, such as raising the tax-exempt ratio for dividends received from overseas subsidiaries from the current 95 percent to 100 percent.

However, some warn that such measures risk government overreach.

“This resembles an old-school administrative guidance approach driven by urgency,” said Kang In-soo, an economics professor at Sookmyung Women’s University. “Companies delay currency conversion for many reasons — such as raw material imports or overseas investments — and the government interfering too much in that process is not ideal.”

National Pension’s foreign-currency bond idea raises eyebrows

The government is also weighing whether to have the NPS issue foreign-currency bonds — a move that has never been attempted before. The Health Ministry has recently commissioned a study to evaluate the feasibility of such a move and may begin reviewing the legal revisions needed. Under current law, NPS funding sources are limited to pension premiums, investment returns, reserves and budget surpluses — meaning new legislation would be required to allow debt issuance.

Issuing foreign-currency bonds would effectively mean the NPS borrows dollars directly from the market. This would reduce the need for the fund to sell won in the spot market to secure dollars for overseas investments, thereby decreasing dollar demand and helping to stabilize the exchange rate.

Export cargoes are stacked up at the Pyeongtaek Port in Gyeonggi on Dec. 1. [YONHAP]

But market watchers remain cautious. The bonds would still be debt that must be repaid with interest, which could undermine returns for pension beneficiaries. Rising global interest rates could increase the burden, adding to fiscal uncertainty.

“If bonds are issued, the NPS would need to start paying interest for the first time, which contradicts the goal of maximizing long-term returns for retirees,” said Seok Byoung-hoon, an economics professor at Ewha Womans University.

A financial market source who requested anonymity also echoed the sentiment, saying, “When foreign pension funds issue foreign-currency bonds, it’s to boost returns through leverage — not to defend the exchange rate. It’s questionable whether this is the right approach.”

Scrutiny of securities firms and retail investors intensifies

In another move, the Financial Supervisory Service will increase oversight of securities firms through January.

Officials believe that the recent boom in foreign stock and derivatives investment is driving up demand for foreign currency and adding to volatility in the foreign exchange market.

The review will therefore examine whether firms have properly explained risks when selling overseas investment products, provided adequate disclosure and engaged in marketing practices that encourage leveraged investing.

Prime Minister Kim Min-seok, center at the left row, speaks with Rhee Chang-yong, governor of the Bank of Korea, during a meeting held the Seoul Government Complex in Jongno District, central Seoul, on Dec. 9. [PRIME MINISTER'S SECRETARIAT]

Prime minister meets BOK governor in rare move

In an unusual step, Prime Minister Kim Min-seok held a face-to-face meeting with BOK Gov. Rhee Chang-yong on Tuesday to discuss the exchange rate. The two reportedly discussed recent trends in exchange rates and prices, as well as the BOK’s recent report on corporate restructuring.

“Close coordination between the government and the central bank is critical for stabilizing exchange rates and inflation,” Kim said. The meeting was notable for its formality and rarity, in which the schedule was disclosed in advance and initiated by the prime minister.

Despite the government’s efforts, the currency market remained mostly unmoved. The won ended Tuesday at 1,472.3 per dollar, up 5.4 won from the previous day's close of 1,466.9 won — staying within the 1,470 range.

“By focusing too much on short-term interventions, the government may be contributing to greater market distortion,” said Prof. Kang. “Instead of blaming retail investors or companies for acting irrationally, the government should acknowledge that broader structural factors — such as Korea-U.S. tariff negotiations and interest rate differentials — are at play, and communicate a long-term strategy.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM YEON-JOO [[email protected]]