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Won's real purchasing power falls to lowest since financial crisis

Published: 19 Nov. 2025, 17:32

A screen shows the Kospi, left, and the foreign exchange rate between the dollar and won, center, in the foreign exchange trading room of the Hana Bank headquarters in central Seoul on Nov. 19. [AP/YONHAP]

The real purchasing power of the Korean won has fallen to its lowest level since the global financial crisis in 2009, according to international data, while also hitting a record low on the "Big Mac Index."

Data from the Bank for International Settlements released on Tuesday showed that Korea’s real effective exchange rate — set with 2020 as the baseline of 100 — stood at 90.57 in September, even lower than the rate in the wake of the Dec. 3 martial law declaration. After the short-lived imposition, the won-dollar exchange rate briefly weakened to the 1,480 won range, sending the index to 90.97.

The average rate for the year to date is 90.87, the lowest since it hit 86.96 in 2009, at the height of the financial crisis, and below the level seen during the Covid-19 pandemic in 2022, when it came to 94.88.

The real effective exchange rate measures the relative value of a currency by comparing it with those of 60 major trading partners. It reflects not only foreign exchange movement but also price differences and trade-weighted rates across countries, offering a measure of a currency’s purchasing power.

A reading below 100 means the currency’s purchasing power has fallen below the average level of the base year, in this case, 2020. The lowest rate for the won on record was 82.94 in 1998 during the Asian financial crisis.

The Big Mac Index — an informal measurement created by The Economist based on the relative price of the McDonald's burger in dollars by country — tells a similar story. As of July, Korea’s index stood at $3.84, 33.6 percent lower than the United States at $5.79. The undervaluation for Korea relative to the United States was the largest since the index was introduced in April 2000, even worse than the 24.6 percent undervaluation in July 2009, during the financial crisis.

Several factors are weighing on the won’s devaluation. Rising demand for dollars from retail investors buying U.S. stocks and importers has coincided with nearly 9 trillion won ($614.38 million) in net selling of Korean equities by foreign investors this month.

Fundamentally, the prolonged Korea–U.S. interest rate inversion since 2022 — with the U.S. benchmark interest rates higher than Korea’s — together with increased won liquidity driven by an expansionary fiscal policy has weakened the currency. Continued uncertainty over the $350 billion U.S. tariff deal and mixed expectations about interest rate cuts by the U.S. Federal Reserve are also adding pressure.

A prolonged period of won depreciation poses significant risks for the Korean economy. Higher import prices feed into domestic inflation, but the concerns do not end there.

A Korean won note is seen against the Korean flag in this illustration photo on May 31, 2017. [REUTERS/YONHAP]

In the past, a weaker won helped major exporters by boosting price competitiveness and improving the current account and trade balance. But this dynamic no longer holds under Korea’s increasingly complex industrial structure, where many companies rely heavily on imported raw materials to manufacture export goods.

A study by the Korea Institute for Industrial Economics & Trade last year estimated that a 10 percent fall in the real effective exchange rate reduces the operating margin of conglomerates by 0.29 percentage points.

Seok Byoung-hoon, an economics professor at Ewha Womans University, said the weak won trend is likely to persist due to ongoing Korea–U.S. tariff negotiations and declining expectations of U.S. rate cuts.

“To improve Korea’s medium- to long-term equilibrium exchange rate, the country needs to maintain strong export momentum and create conditions that encourage greater domestic corporate investment, including through tax policy,” he said.

Meanwhile, Deputy Prime Minister and Finance Minister Koo Yun-cheol met with executives from major exporters, including Samsung Electronics, SK hynix, Hyundai Motor and Kia, on the same day and asked for their cooperation with government measures aimed at improving foreign exchange liquidity.

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 SEON-MI [[email protected]]