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Lee Jae Myung government’s ‘dollar-gathering drive’ tests the line between will and capacity

Published: 29 Dec. 2025, 00:04

Ha Hyun-ock

The author is an editorial writer at the JoongAng Ilbo.

The memory of Korea’s “gold collection campaign” remains vivid. Opinions differ on its actual effectiveness, but few dispute that it became a powerful symbol during the foreign exchange crisis, helping the country climb out of a deep economic emergency. Gold collection worked in part because it offered a simple, tangible response to a shortage of foreign currency. This time, however, the focus is not gold but dollars. Determined to rein in a runaway exchange rate, the government has launched what amounts to a nationwide “dollar-gathering campaign.”

Dealers talk in the dealing room at Hana Bank in Jung District, Seoul, on Dec. 26. The won-dollar exchange rate closed, including after-hours trading, at 1,440.3 won, down 9.5 won on the day. [NEWS1]

The government’s stance is resolute. Policy officials have declared a war on the exchange rate, saying the public will soon see the government’s “strong will and capacity for policy execution.” Will and capacity are both necessary for successful policy. Yet what ultimately determines outcomes is the balance between the two. Without will, even capable policymakers cannot begin. But when will burns brighter than capacity, policies risk backfiring, creating distortions and unintended consequences.

The government’s determination to curb the rising won-dollar rate is unmistakable. Individual investors who have flocked to overseas markets, often labeled “overseas investment warriors,” have been alternately warned and coaxed. On Dec. 18, Kim Yong-beom, presidential chief of policy, summoned export companies and urged them not to chase “small profits,” pressing them to sell dollars. Compared to this, measures such as restricting securities firms’ marketing of overseas stocks or scolding asset managers for selling unhedged products seem almost mild.

Little has been left off the table in the push to collect dollars. The National Pension Service, the backbone of Koreans’ retirement security, has been placed at the forefront of exchange-rate defense. The government extended a $65 billion foreign exchange swap between the Bank of Korea and the National Pension Service, along with the pension fund’s “strategic currency hedging” program, through next year. Under this system, overseas assets are sold when the exchange rate exceeds a preset threshold to dampen further depreciation of the won. The government also decided to pay interest for six months on excess foreign currency reserves deposited by financial institutions at the central bank, aiming to prevent those funds from being invested overseas in search of higher returns.

Even taking on dollar-denominated debt is no longer off-limits. To ensure a smoother dollar supply, the government temporarily waived the macroprudential levy on institutions holding foreign-currency liabilities above a certain level. It has even floated the idea of allowing the National Pension Service to issue foreign currency bonds. The logic is that dollars raised abroad and invested overseas would reduce domestic demand for dollars, easing pressure on the won.

Tax incentives have also been deployed. Through so-called Return to the Internal market Accounts, or RIAs, the government has opened a path for overseas investors to bring dollars back home. For one year starting next month, investors who sell overseas stocks and reinvest the proceeds into domestic equities for at least a year will receive capital gains tax relief on overseas stock sales, capped at 50 million won. Companies, meanwhile, will be exempted from taxes on dividends repatriated from overseas subsidiaries.

The barrage of measures appeared to have an immediate effect. The won-dollar exchange rate, which had been climbing steadily, fell sharply. After peaking at 1,483.6 won on the 23rd, the rate closed at 1,449.9 won on the 24th, the day the government announced its RIA and other repatriation measures. By the 26th, it had dropped further to 1,445.3 won, a decline of more than 43 won in just two trading sessions.

With two days left before foreign exchange trading closes for the year, the year-end closing exchange rate is increasingly likely to finish lower than last year’s level, though the annual average is expected to reach a record high. As of Dec. 26, the average exchange rate for the year, based on daytime trading closes, stood at 1,421.9 won, surpassing the 1998 average of 1,394.9 won during the Asian financial crisis. The photo shows a currency exchange booth in Myeong-dong, Jung District, Seoul, on Dec. 28. [YONHAP]

Whether this dizzying drop truly reflects the government’s capacity to execute policy is open to question. Market participants estimate that between $2 billion and $5 billion flooded into the foreign exchange market on the 24th alone, suggesting that the National Pension Service’s strategic hedging was activated. If the exchange rate surges again after being pushed down this way, the result could be a loss borne by citizens’ retirement funds.

The RIA scheme also has clear loopholes. Investors could sell U.S. stocks, reinvest in domestic equities through an RIA to secure tax benefits, then sell domestic stocks from existing accounts to buy overseas assets again. There is little to prevent such arbitrage. Rather than encouraging genuine “returns,” the policy risks draining public coffers. Moreover, incentives remain weak in a domestic market often mocked as one in which investing abroad yields after-tax profits, while investing at home risks losing the principal.

Appeals to patriotism, as in the gold collection era, feel anachronistic. Many remember that citizens handed over gold at low prices while corporations at the center of the crisis ultimately benefited. What markets and the public expect from a government seeking to curb excessive currency weakness is not a short-term campaign to gather dollars. What is needed is a restoration of confidence in the Korean economy through credible policies and a government capable of delivering on them.

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.