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As won-dollar disparity grows, so does market anxiety

Published: 23 Dec. 2025, 19:19

Deputy Prime Minister and Finance Minister Koo Yun-cheol, second from right, poses for a photo with Lee Chan-jin, governor of the Financial Supervisory Service, left, Bank of Korea Gov. Rhee Chang-yong, second from left and Financial Services Commission Chairman Lee Eog-weon, right, during a market situation review meeting at the Korean Federation of Banks in Jung District, Seoul, on Nov. 28. [NEWS1]

The government's measures to curb the won’s weakness have so far failed to calm the market as the local currency has sharply depreciated against the dollar. Despite mobilizing the National Pension Service (NPS) at the risk of criticism that the government is meddling with citizens’ retirement assets, anxiety over the foreign exchange market has not subsided.

Some market forecasts now warn that the won’s value could plunge past 1,500 won per dollar and even fall into the 1,600 range. There are multiple reasons why policy measures have had limited effect. Experts say authorities have focused too heavily on short-term supply-and-demand adjustments.

“If the won were weakening due to a shortage of dollar liquidity, as during the 1997 Asian financial crisis, measures such as easing limits on forward foreign exchange positions or exempting banks from foreign exchange soundness levies would be effective,” said one foreign exchange market expert. “But that’s not the situation now. Government measures may have helped stabilize sentiment, but they haven’t been able to change the direction of the exchange rate for this reason.”

The expert added that since 2010, the retirement of the baby boomer generation has led to an increase in long-term savings such as pensions and insurance, with large amounts of capital flowing overseas in search of higher returns — a fundamental factor dragging down the won.

“Exchange rates are ultimately market prices,” said the expert. “To stabilize them, you need to change the supply-and-demand curve itself. To increase dollar supply, authorities must raise the attractiveness of domestic investments so savings don’t keep flowing abroad.”

Criticism has also mounted that delayed diagnosis and response by authorities have instead fueled exchange rate anxiety. Overseas investment by the NPS and the so-called “Seohak ants” — retail investors buying foreign assets — had been ongoing trends, yet officials only belatedly pointed fingers at them, prompting accusations of reactive policymaking.

When the foreign exchange market was stable, authorities emphasized that net external assets — which surpassed $1 trillion late last year — served as a foreign currency buffer. Now, however, state-run research institutes such as the Korea Development Institute and the Bank of Korea are issuing reports calling for curbing excessive overseas investment to slow the growth of net external assets.

A pedestrian passes a currency exchange booth in Myeongdong, central Seoul, on Dec. 22, as the won-dollar exchange rate continues its upward trend. [NEWS1]

Rising corporate burdens from increased investment in the United States are also adding to dollar demand, but foreign exchange authorities have avoided addressing the issue publicly.

Instead, officials have at times pressured exporters, with Policy Chief Kim Yong-beom saying companies should not “seek small gains” from a weaker won. Critics say this reflects an attempt to highlight the successful conclusion of tariff negotiations while deflecting blame toward retail investors and other actors.

As a new order takes shape in the foreign exchange market, calls are growing for a fundamental review of the government’s response framework.

“The semiconductor export-led growth model is failing to translate into a recovery in domestic demand, while youth employment is deteriorating, raising doubts about the underlying strength of the Korean economy,” said You Hye-mi, a professor of economics and finance at Hanyang University. “Recent exchange rate movements are a warning sign. Rather than focusing on short-term measures to prop up the won, authorities should commit fully to fundamentally improving the economy’s structure.”

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 KYUNG-HEE [[email protected]]