Home > Business > Finance

Korea's forex crackdown on exporters raises concerns of gov't overreach

Published: 12 Dec. 2025, 17:42 Updated: 14 Dec. 2025, 18:27

JIN MIN-JI
[email protected]

An employee sorts dollar bills at Hana Bank’s counterfeit response center in central Seoul on Nov. 26. [NEWS1]

Experts warn that the government's move to closely monitor major exporters in case they hoard dollars may not only fail to achieve its goal but could also risk intervening in management decisions.

The Finance Ministry launched an in-house task force to discuss measures to tame the weak won, which has been in the psychologically crucial threshold of the high 1,400 won range since November compared to the high 1,300 won range in September.

Despite the government's efforts, the won weakened against the greenback to close at 1,472.3 on Dec. 9 — the day that media outlets announced that the Ministry of Economy and Finance would launch a new task force — up 0.37 percent from the previous day's close at 1,466.9. The won was quoted at 1,473 against the dollar at 3:30 p.m. on Friday.

The task force will track export companies’ financial activities by examining how much of their earned dollars they convert to won and how much of those dollars they invest overseas. It will also review potential incentives for companies to ensure they comply with the process.

The initiative is a result of the government's view that exporters are a contributing factor to the weak won. Their foreign currency holdings jumped 10.6 percent from $83.39 billion at the end of the first quarter to $92.26 billion at the end of the third quarter, according to the Bank of Korea (BOK).

“The task force is not a fundamental solution but merely a stopgap,” said Chang Min, a senior research fellow at the Korea Institute of Finance. “Exporters are holding onto their dollars because of the exchange rate's volatility. The government cannot ease the exporters’ concerns with these measures unless it introduces policies that give them confidence that the rate will stabilize.”

He added, “The government’s intervention in the market and in companies will not be viewed positively by overseas investors evaluating Korean firms,” referring to the so-called Korea discount, or the chronic undervaluation of Korean companies due to weak investor protection and geopolitical risks.

Some experts say that the government formed the task force to involve the National Pension Service (NPS), the world’s third-largest pension fund and a heavy influencer in the foreign exchange market. It possessed about $542 billion in foreign assets as of the end of September — higher than the country's $430.6 billion in total foreign reserve holdings as of November.

“The purpose of the task force appears to be to utilize the NPS's overseas investment funds,” said Kim Sang-bong, an economics professor at Hansung University.

The government is considering potentially issuing foreign currency bonds through the NPS, which would require amending current laws. Issuing foreign currency bonds in the offshore market is expected to reduce the impact of the exchange rate's volatility since it eliminates the need to buy dollars with won.

The won-dollar exchange rate is displayed at a booth in Myeongdong, central Seoul, on Nov. 26. [JOONGANG PHOTO]

The NPS also started selling dollars in the market recently as part of its tactical hedging program to tame the won’s weakness, according to a Bloomberg report on Tuesday. The fund can hedge up to 15 percent of its foreign assets, or more than $80 billion.

“The government must not touch the pension, as it could threaten the people’s retirement security,” Kim added. “Also, the [potential] outcomes from involving the NPS seem limited, given the fundamental reason for the weak won is the rate gap between Korea and the United States, which has persisted for more than three years.”

The BOK’s interest rate has been higher than the U.S. Federal Reserve’s since September 2022, and the bank is cautiously watching the causes and effects of high household debt and the weak won. The rate difference narrowed on Wednesday as the Fed cut the federal funds rate to between 3.5 percent and 3.75 percent compared to the BOK’s 2.5 percent. Higher interest rates tend to attract foreign investment, boosting demand for the currency — in this case, U.S. dollars.

Other experts view the task force as the government's way of shoring up investors' confidence amid the won's sharp downturn.

“It's true that the authorities have limits on what they can do in the current situation,” said Lee Seung-ho, a senior research fellow at the Korea Capital Market Institute, who previously worked as a senior economist at the International Monetary Fund’s Asia-Pacific office and the deputy head at BOK. “The aim is to signal to the public that the government is not standing by idly but actively responding to prevent excessive one-way pressure on the exchange rate, which can be driven by artificial demand.”

The exchange rate is expected to stabilize in the coming months, as there is little momentum for further depreciation, Lee added. He pointed to the expected inflow of funds when Korea joins the FTSE World Government Bond Index in April 2026 — with an estimated 2.08 percent weighting, the ninth largest among all included countries — and to next year's stronger growth outlook, projected to be 1.8 percent compared to the BOK's estimation of 1 percent for this year.

BY JIN MIN-JI [[email protected]]