Scapegoating Won't Fix Korea's Weak Currency

It may sound amusing now, but back in October last year when the won-dollar exchange rate was racing toward the 1,400 won level, a senior foreign exchange official brought up the topic of "seohak gaemi" — Korean retail investors in overseas stocks. He assessed that reversing investment flows like those of overseas retail investors "would take a decade," diagnosing the won as being caught in a structural weakening trend.

What he was actually more worried about was the National Pension Service. He argued that by increasing overseas investments without currency hedging, the NPS was fueling the won's depreciation. Around that same time, coincidentally, another official's comment that "1,400 won per dollar is the new normal" also sparked controversy.

Looking back, whatever the reasons, the foreign exchange authorities seem to have foreseen today's elevated exchange rate situation. While they may not have anticipated the "worst-case scenario" of having to remit $20 billion annually due to tariff negotiations with the United States, they were reading the signals that the won's fundamentals were weakening.

Fast forward to one day in November, a year later. A government official, in private conversation, let out a deep sigh while mentioning a specific company. The gist was that "they're hoarding dollars earned from exports instead of bringing them back home." Companies holding dollars is a matter of autonomous judgment to prepare for overseas investment expansion and business uncertainties — yet it sounded like the official was shifting blame for exchange rate instability onto the private sector.

The four-party foreign exchange consultative body — involving the foreign exchange authorities and the National Pension Service, among others — is a classic case of "closing the barn door after the horse has bolted." Just a year ago, whenever someone floated the idea of deploying the NPS, the authorities would wave it off dismissively. Taking an "NCND (neither confirm nor deny)" approach, they would even chide such suggestions with something like "why are you doing this among fellow insiders?" Now, those same authorities are promoting a consultative body and promising countermeasures. One can't help but feel deep regret — what if they had quietly constructed a new framework before the exchange rate climbed this high?

The real culprits behind the elevated exchange rate are neither overseas retail investors nor dollar-hoarding companies. The fundamental causes are declining potential growth rates and the domestic stock market losing its appeal. In a situation where economic structural reforms have been delayed, national competitiveness has weakened, and the won's value is consequently shaking, blaming investors and companies is putting the cart before the horse.

Nothing will change if we keep taking out our frustrations on the wrong targets — like getting slapped in Jongno and venting anger at the Han River.