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๐Ÿ‡ฐ๐Ÿ‡ท South Korea /Economy & Trade

South Korean won weakens despite export boom as companies hoard dollars

From Hankyoreh · () Korean

Translated from Korean, summarized and contextualized by DistantNews.

At a glance

News Sources not specified Ongoing story
  • Despite strong exports, the South Korean won is weakening against the dollar, with the exchange rate exceeding 1,500 won per dollar for over three weeks.
  • Companies are holding onto dollars earned from exports, anticipating further currency depreciation and potential future payment needs.
  • The government is considering measures, including urging companies to convert export earnings into won, to stabilize the exchange rate.

South Korea's economy is facing a peculiar situation where robust export performance is failing to strengthen the national currency. The won-dollar exchange rate has remained above 1,500 won for over three weeks, prompting government intervention.

Companies are reportedly holding onto their dollar reserves earned from exports, either in overseas accounts or as unexchanged funds domestically. This strategy is driven by expectations of further won depreciation, which would allow them to profit from currency exchange gains (ํ™˜์ฐจ์ต). Additionally, businesses may be preparing for future dollar-denominated payments.

As of March 5th, the combined dollar deposit balances held by five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) reached $52.44 billion, an increase of over $1 billion in just four business days and nearly $6 billion since the end of March. This trend indicates a significant accumulation of corporate dollar holdings.

As the exchange rate volatility increases, demand to hold dollars remains high.

โ€” Bank officialExplaining the trend of companies holding onto dollar deposits.

Furthermore, the Bank of Korea reported that domestic banks' dollar deposits held in overseas accounts saw a record increase of $12.16 billion in April compared to the previous month. This surge is attributed to strong export revenues. The reluctance of exporters to convert their dollar earnings into won is limiting the stabilizing effect of strong exports on the exchange rate.

The Ministry of Economy and Finance plans to hold discussions with export companies and foreign exchange market participants on March 11th to explore measures for improving foreign exchange supply, including encouraging the conversion of export proceeds into won. Similar requests were made in November and December of the previous year when the exchange rate hovered around the mid-1,400s. The Financial Supervisory Service also plans to convene meetings with various financial sectors, starting with banks, to assess responses to the high exchange rate.

Domestic companies' export performance has led to a significant increase in cash and deposits held in overseas accounts.

โ€” Bank of Korea officialAttributing the rise in overseas dollar holdings to export growth.
DistantNews Editorial

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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