As Korea's currency weakens to 17-year low, concerns mount over inflation, business pressure
Published: 26 May. 2026, 16:05
Updated: 26 May. 2026, 17:11
![Korean 50,000 won bills are stacked inside a bank in Seoul on Oct. 24, 2022. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2026/05/26/d72f972b-ccb6-490e-9c8f-869e1555552d.jpg)
Korean 50,000 won bills are stacked inside a bank in Seoul on Oct. 24, 2022. [YONHAP]
Korea’s currency has fallen to its weakest real value in more than 17 years, squeezing businesses and consumers and deepening pressure across the broader economy.
“Two months ago, we switched our suppliers to China to reduce import costs, but the won fell even more sharply than the yuan, and it's resulted in us losing nearly 200 million won [$133,000],” said Kim, a 50-year-old head of a small manufacturing company in Siheung, Gyeonggi. Kim's company imports parts such as bearings and rubber.
“If the exchange rate stays in the 1,500 won range, it will not be easy to hold on.”
The real value of the won has fallen to its lowest level in 17 years and one month. The real effective exchange rate reflects inflation and the value of trading partners’ currencies to measure a country’s external purchasing power, or real currency value. The lower the index, the weaker the currency’s real value.
The real effective exchange rate index for the won last month, with 2020=100 as a base, stood at 85.06, according to the Bank for International Settlements (BIS) on Monday. It was the lowest since March 2009, immediately after the global financial crisis, when it stood at 79.31. Among the 64 countries tracked by the BIS, only Japan recorded a lower figure than Korea at 65.7.
This month, the exchange rate returned to the 1,500 won level, remaining above that line for six consecutive trading days and surging close to the 1,520 won mark at one point.
In Seoul’s foreign exchange market, the exchange rate closed at 1,517.2 won on Friday, up 11.3 won from the previous day based on the daytime closing price, indicating a further weakening of the local currency.
![Employees take part in a ceremony at the dealing room of Hana Bank in Seoul on May 15 to celebrate the benchmark Kospi having risen over the 8,000-point mark for the first time. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2026/05/26/e462bf47-ac9d-47a1-843e-e348a2b62b30.jpg)
Employees take part in a ceremony at the dealing room of Hana Bank in Seoul on May 15 to celebrate the benchmark Kospi having risen over the 8,000-point mark for the first time. [YONHAP]
Not just a strong dollar
The phenomenon is difficult to explain solely through a strengthening dollar.
Korea’s current account surplus earned overseas in the first quarter reached $73.78 billion, nearly quadrupling from a year earlier. The Kospi also surpassed the 8,000-point level for the first time during intraday trading.
Despite conditions traditionally associated with a stronger currency, the won instead became one of the weakest among Asian currencies.
In fact, the won’s value against the dollar fell 5.2 percent from the beginning of the year through Friday, according to the Bank of Korea. It marked the sixth-steepest decline among 40 countries. The drop was larger than that of the Philippine peso, down 4.5 percent; the Thai baht, down 3.5 percent; the Taiwan dollar, down 0.8 percent; and the Vietnamese dong, down 0.2 percent.
During the same period, however, China’s offshore yuan strengthened against the dollar, up 2.5 percent, and the Malaysian ringgit gained 2.3 percent.
The biggest cause of the weakening won is the outflow of 100 trillion won in foreign capital. Foreign investors have been selling Korean stocks and converting the proceeds into dollars before withdrawing funds, increasing upward pressure on the exchange rate.
![Kim Yong-beom, presidential chief of staff for policy, gives a briefing on the presidential meeting on the response to the Middle East crisis at the Blue House in central Seoul on March 9. [JOINT PRESS CORPS]](https://koreajoongangdaily.joins.com/data/photo/2026/05/26/2634fc62-3f09-44c5-b357-83933246b802.jpg)
Kim Yong-beom, presidential chief of staff for policy, gives a briefing on the presidential meeting on the response to the Middle East crisis at the Blue House in central Seoul on March 9. [JOINT PRESS CORPS]
The presidential office explained it as an “unavoidable cost” for Korea’s economy to take off.
“High interest rates, high inflation and a high exchange rate are unavoidable costs of success accompanying the Korean economy’s leap to a new level,” said Kim Yong-beom, the presidential chief of staff for policy, on Facebook on Sunday. “They are not signs of crisis but friction noise from a new takeoff.”
He pointed to the exchange rate as a representative example.
“As the Kospi surged more than 70 percent this year, foreign investors began selling to realize part of their massive valuation gains, and demand for dollar conversion pushed up the exchange rate,” he wrote. “The current weakness of the won is not caused by a shortage of foreign currency as seen during the foreign exchange crisis.”
He added, “It is a paradoxical phenomenon created by Korea’s success rather than by economic vulnerability.”
Such confidence also stems from the strong growth driven by robust semiconductor exports, excess tax revenue and rising asset prices such as stocks.
![A screen in Hana Bank's trading room in central Seoul shows the Kospi opening on May 22. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2026/05/26/be327ac1-9adc-4abd-9907-6d5b02e8de05.jpg)
A screen in Hana Bank's trading room in central Seoul shows the Kospi opening on May 22. [YONHAP]
Main player shifts to foreign investors
The Korean stock market is becoming more attractive to foreign investors, adding to currency pressure.
Last year, the expansion of overseas investment by individuals and institutions contributed to the won’s weakness, but this year, the main players have shifted to foreign investors.
The common factor is that capital outflows are significantly offsetting dollars earned through the current account surplus.
Foreign investors sold more than 40 trillion won worth of Kospi stocks on a net basis from the start of this month through Friday, according to the Korea Exchange. Their cumulative net sales since the beginning of the year reached 93.2235 trillion won, 6.7 times larger than the 13.8112 trillion won recorded a year earlier.
Demand from companies seeking to keep dollars overseas rather than convert them into won has also contributed to the rising exchange rate.
![A sign marking the Kospi’s close above the 7,000-point level for the first time is displayed on the exterior wall of the Korea Exchange’s Seoul office in Yeongdeungpo District, western Seoul, on May 6. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2026/05/26/90871535-33a0-4d88-9fa9-193b86669f20.jpg)
A sign marking the Kospi’s close above the 7,000-point level for the first time is displayed on the exterior wall of the Korea Exchange’s Seoul office in Yeongdeungpo District, western Seoul, on May 6. [YONHAP]
“It is difficult to determine whether the motive is overseas investment, such as factory construction, or hedging against exchange losses, but these corporate decisions are also one factor supporting the high exchange rate,” an official at a state-run research institute said.
Views in the foreign exchange market have also changed.
“In the past, if the exchange rate reached 1,500 won, investors would have bet on a reversal because the government would use whatever means necessary,” a foreign exchange dealer said. “But these days, expectations seem much higher. With many investors thinking in terms of 1,600 to 1,700 won, why wouldn’t demand to hold dollars remain strong?”
![Seoul citizens crowd a traditional market in Seoul on July 7, 2025, the day when the Lee Jae Myung administration announced public livelihood recovery coupons. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2026/05/26/1cfd55b2-c79c-4233-9dc4-1538a7194b70.jpg)
Seoul citizens crowd a traditional market in Seoul on July 7, 2025, the day when the Lee Jae Myung administration announced public livelihood recovery coupons. [YONHAP]
Bigger problems lie ahead
The real problem is what comes next, should the weak won hold.
External conditions remain challenging. As the Middle East conflict has continued for more than two months, the shock from high oil prices is beginning to intensify. Because Korea depends heavily on the Middle East for crude oil imports, rising oil prices increase import costs and weigh on the won.
In addition, U.S. monetary tightening remains a volatile variable. If inflation concerns intensify, the Federal Reserve could shift its interest rate path toward hikes. If market interest rates and dollar strength continue at that point, global capital could flow even more heavily into the United States.
The government is stepping up its response. After proposing a currency swap arrangement with the United States to ease exchange-rate volatility, and with the dollar-won exchange rate surging to near 1,520 won on Friday, authorities said in remarks that “exchange-rate movements are excessive.”
However, low growth and population aging are also cited as major factors weakening the won, and these are difficult to resolve quickly. Some analysts say the recent recovery in the economy and stock market has been concentrated in semiconductors, making it difficult to view the rebound as a broad improvement in economic fundamentals.
![An aerial view of SK hynix's M16 semiconductor plant in Icheon, Gyeonggi [SK HYNIX]](https://koreajoongangdaily.joins.com/data/photo/2026/05/26/5c332bdc-3898-4c27-b5c7-88c429ec2aca.jpg)
An aerial view of SK hynix's M16 semiconductor plant in Icheon, Gyeonggi [SK HYNIX]
“The value of the won will rise only when dollar funds remain in Korea, and conditions are created for investment in industries beyond semiconductors,” said Park Hyung-joong, an economist at Woori Bank. “If the era of the 1,500 won exchange rate becomes prolonged, the burden on the overall economy could grow.”
As oil prices fluctuate due to the war in Iran, import prices are also rising gradually, with concerns over higher consumer prices mounting. It could further aggravate widening inequality, as the burden of inflation weighs more heavily on low-income households.
If the benchmark interest rate rises in the second half of the year, the livelihoods of ordinary people could become even more difficult. Prolonged high interest rates would deal a direct blow to small businesses and financially vulnerable households.
“Hindsight over one month, three months or six months shows repeated rises and falls while the overall level gradually moves higher, which means the economy has developed a tolerance for a high exchange rate over quite a long period,” said Hur Joon-young, a professor of economics at Sogang University.
“Like clothes slowly getting soaked by a drizzle, shocks are steadily accumulating. It may not be immediate, but if more people begin suffering because of the exchange rate, unexpected side effects could emerge.”
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 YEOM JI-HYEON, JANG WON-SEOK, KIM YEON-JOO [[email protected]]
with the Korea JoongAng Daily
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