Credit: Public domain.
On July 2, USD 1 traded for KRW 1,541.8 - an exchange rate not seen since 2009, in the wake of the Global Financial Crisis. It is a precipitous drop in value for the KRW, for which the longstanding rule of thumb for KRW-USD conversion was, as recently as 2021, to “drop three zeros,” assuming an approximate rate of USD 1 to KRW 1,000.
The KRW’s fall would seem puzzling, given the wild success of South Korean corporations like Samsung Electronics 삼성전자 and SK Hynix SK 하이닉스 and a booming stock market that has attracted international investors. But those successes may be contributing to the won’s weakness, at least for the time being.
The two semiconductor giants have yet to invest the dollars they have been earning back into South Korea as KRW. Meanwhile, the South Korean stock market’s upward trajectory has caused many institutional investors to re-balance their portfolios by selling their shares and converting their gains into USD.
Some relief may be on the way. Samsung Electronics and SK Hynix will be making the massive capital investments within South Korea proposed by the Lee Jae-myung 이재명 administration. The two companies will also pay bonuses to their employees and pay taxes by the year’s end, both of which will require them to convert their USD stockpiles into KRW.
The National Pension Service 국민연금, the third largest pension service in the world, announced that it will more actively hedge against exchange rate variation and invest more into South Korean domestic stocks, further relieving the pressure on KRW.
