[Gangnam Perspective] The Exchange Rate Does Not Lie

We are living in an era of high exchange rates, with the US Dollar–South Korean Won exchange rate remaining above 1,400 won for more than two months. On the 8th, it closed at 1,466.9 won. Despite the Korea Composite Stock Price Index (KOSPI) surpassing 4,100 and exports reaching record highs—conditions far from an economic crisis—the value of the won continues to fall. While many call this situation unusual, it may well be the new normal. There is a sense of tension that, should a trigger arise, the rate could easily break through the 1,500-won mark.
The exchange rate is like a goblin—unpredictable and elusive. The traditional formula that a Current Account Balance surplus leads to a stronger won no longer holds. Even economic authorities, probing the entrenched US Dollar–South Korean Won exchange rate in the 1,400-won range, must feel frustrated by the lack of clear answers.
The exchange rate is a mirror—it does not lie. Its fluctuations have coincided with key events: the United States–Korea Tariff Negotiations in May, the launch of the Lee Jae-myung administration in June, the 13-trillion-won Consumption Coupon distribution and Everything Rally in September, strong real estate regulations in October, and the $35 billion Investment in the United States pressure in November. Retail investors, driven by the instinct to grow their assets, have even taken out credit loans to use the US stock market as an exit. In this era of great transformation, investments in Artificial Intelligence (AI) and Big Tech in the US have become especially attractive. The Trump administration’s tariff policies have funneled $900 billion (about 1,320 trillion won) from Japan and the Republic of Korea (ROK) into the US. The dominance of the United States dollar (USD) remains unchallenged. The Mobile Technology Revolution has enabled 7 million Korean individual investors investing in overseas stocks to buy and sell foreign assets with just a few clicks. The Fear of Missing Out (FOMO) has affected not only young people, who are considered 'cool,' but also middle-aged and older generations who feel they cannot escape poverty through labor income alone. In October and November alone, individuals bought three times more overseas stocks year-on-year, and the National Pension Service (NPS) doubled its purchases, including high-risk Exchange-Traded Funds (ETF) that track US Big Tech stocks two to three times. The fact that $89.9 billion flowed overseas from January to October—more than the $89.6 billion Current Account Balance surplus—shows that indicators do not lie. While individuals are enthusiastic about the US stock market, export companies, hedging their risks by holding onto dollars and focusing on Investment in the United States and uncertainty, have proven to be the true experts in risk management.
An abundance of liquidity has fueled the fire. As of September, Money Supply M2 (M2) stood at 4,426 trillion won, nearly double the growth rate seen in major countries like the US. Had this liquidity been channeled into innovative investments, the exchange rate trend might have been different. Instead, a significant portion of the over 100 trillion won in borrowed fiscal spending has gone to irreversible Public Social Expenditure and one-off cash handouts such as Consumption Coupon policies.
The exchange rate is notoriously difficult to manage. It is frustrating to see the government only addressing surface issues without tackling the root causes. Authorities are determined to overhaul the behavior of foreign exchange supply and demand participants. The National Pension Service (NPS) is planning to revise its overseas investment framework under the name New Framework, while securities companies are being scrutinized for excessive or distorted overseas investments. While it is understandable to use such measures to curb speculation and address urgent issues, simply applying pressure will not solve the problem. Threats to curb USD demand or consider penalties if necessary, as well as ambiguous messages that test the market, are disappointing examples of outdated, stopgap measures. The 'National Pension Fund Firefighter' debate also raises concerns that the essence of the NPS—pursuing both returns and stability for the public’s retirement assets—may be undermined.
The essence of the high exchange rate crisis is the declining investment appeal of the Republic of Korea (ROK). The outflow of funds to the United States has led to a relative contraction of domestic investment, deindustrialization, uncertainty about the repatriation of investment returns, a continued decline in potential growth due to demographic deterioration, a rigid labor structure, and the proliferation of anti-business regulations—all of which are weakening the Korean economy.
The exchange rate reflects the nation’s strength today and tomorrow. In its second year, the Lee Jae-myung administration must present clear economic and industrial reform policies to overcome entrenched stagnation and low growth. It is essential to restructure marginal companies, invest boldly in Innovative Companies, and use the accumulated economic base as a springboard for growth. Outdated regulations must be relaxed, laws amended or newly enacted, and the environment improved so that both domestic and foreign companies can invest more in our country. Policymakers and the ruling party must break free from their narrow, piecemeal perspectives and awaken to the broader challenges at hand.
skjung@fnnews.com Reporter