Key Highlights
- South Korea’s won has come under sustained pressure as a strong US dollar and high global interest rates weigh on Asian currencies.
- Policymakers fear a weaker won could fuel inflation, trigger capital outflows, and strain corporate balance sheets.
- The currency’s slide is now seen as a broader risk to financial stability rather than a boost for exports.
South Korea’s authorities are growing increasingly uneasy about the weakness of the won, as currency depreciation threatens to complicate inflation control, unsettle financial markets, and test investor confidence in Asia’s fourth-largest economy.
What’s Really Happening to the Korean Won
The won has weakened against the US dollar in recent months, tracking the broader strength of the greenback and pressure on Asian currencies such as the Japanese yen. The decline has been volatile, prompting verbal warnings and closer monitoring from South Korean authorities, according to Reuters.
While a weaker currency can sometimes support exports, policymakers in Seoul now see more risks than rewards, especially in a global environment dominated by high US interest rates and slowing global demand.
Why the Won’s Slide Is Raising Alarm
South Korea’s policymakers are not overly concerned about mild currency weakness. What worries them is the risk of sharp or disorderly depreciation, which can quickly erode confidence and amplify market stress.
Furthermore, officials fear that if investors begin to expect continued losses, the won could come under speculative pressure. As a result, forcing authorities to intervene more aggressively in foreign exchange markets.
Inflation Risks Loom Large
One of the biggest concerns is inflation. South Korea relies heavily on imports for energy, food, and industrial raw materials, all of which are priced in dollars. A weaker won raises import costs, feeding directly into consumer prices.
The Bank of Korea has repeatedly warned that currency weakness could create upside inflation risks, complicating its efforts to stabilise prices while supporting economic growth, as reported by Reuters.
Capital Outflows and Market Confidence
A falling won can also discourage foreign investment. When the currency weakens, overseas investors face the risk that gains in Korean stocks or bonds could be wiped out by exchange-rate losses.
In a high US-rate environment, this increases the temptation for global investors to pull money out of emerging markets, including South Korea, and park funds in dollar assets. Persistent capital outflows could pressure financial markets and tighten domestic liquidity.
Corporate Debt and Financial Stability Concerns
Currency weakness also raises alarms about corporate balance sheets. Many South Korean companies carry dollar-denominated debt, which becomes more expensive to service when the won falls.
Smaller firms are particularly vulnerable, and policymakers worry that prolonged currency pressure could strain credit conditions and increase risks for banks, especially if global demand weakens further.
Why Exports No Longer Offset the Pain
In theory, a weaker won should make South Korean exports more competitive. In practice, that benefit is increasingly limited. Exporters face higher costs for imported components and energy, while global demand for electronics and industrial goods remains uneven.
As a result, the traditional export boost from currency depreciation is less powerful than in past cycles.
Why Global Markets Are Watching
Much of the pressure on the won stems from the global dominance of the US dollar. With the Federal Reserve keeping interest rates elevated, the gap between US and South Korean yields has widened, putting sustained downward pressure on the won. This dynamic leaves the Bank of Korea with limited room to manoeuvre, as cutting rates too aggressively could worsen currency weakness.
The won is often seen as a bellwether for risk sentiment in Asia. Prolonged weakness could signal deeper stress across emerging markets, particularly those sensitive to dollar funding conditions.
For now, South Korea’s message is clear: currency stability matters more than short-term export gains.
