The Korean won has emerged as the fifth-weakest currency in the world this quarter, despite authorities’ attempts to curb its volatility, highlighting structural challenges in the domestic economy and global capital flows.
Data compiled by the Bank of Korea shows that the won has fallen 3.3% against the U.S. dollar in Q4 through December 24, 2025. Among the 42 currencies tracked by the central bank, only the Argentine peso (-6.8%), Japanese yen (-5.1%), Brazilian real (-3.7%), and Taiwanese dollar (-3.3%) depreciated more significantly.
Even after verbal interventions by financial authorities on December 24, the won reportedly gained 33.8 won in a single day, its strongest one-day rise in over three years, closing at 1,449.8 won during daytime trading. Still, the currency remained in the 1,480-won range over the previous two days, marking the first consecutive two-day stay at this level since the 2009 global financial crisis.
Factors Driving Won’s Weakness
Analysts point to a combination of domestic and international factors:
Foreign Investment Outflows: Retail investors and institutions have been sending record sums overseas. Individual investors set a record with $32 billion in net purchases of U.S. stocks, while the National Pension Service (NPS) added about 70 trillion won to its overseas holdings this year, accounting for 58% of its assets.
Corporate and Institutional Movements: Korean corporations’ retained earnings abroad rose by $7.8 billion, a 40.2% increase from 2024.
“Korea Discount”: Central Bank Governor Rhee Chang Yong highlighted a persistent undervaluation of Korea’s top conglomerates and stock market due to corporate governance concerns.
To stabilize the won, South Korean authorities have implemented multiple interventions:
Verbal Warnings: The Ministry of Economy and Finance warned that an excessively weak won is undesirable.
Coordination with Pension Funds and Corporates: Officials urged the NPS and major “chaebol” conglomerates like Samsung Electronics and SK Hynix to convert foreign earnings back into won.
Foreign Exchange Market Operations: Authorities carried out “smoothing operations” and adjusted market stability rules to ensure sufficient dollar liquidity.
“Foreign-exchange authorities do not target a specific exchange-rate but step in when price moves become excessively sharp,” a central bank official told Bloomberg. Despite these efforts, the measures have not been enough to reverse the downward trend, largely due to persistent outbound investments.
Several broader factors contribute to the won’s weakness:
Outlook for US Rates: Expectations for US interest rate cuts have faded, supporting a stronger dollar.
Global and Regional Currency Trends: The Japanese yen has also weakened under the new conservative administration, while domestic exports benefit from a cheaper won.
Household Behavior: High property prices in Seoul and low returns on domestic stocks are pushing young investors to seek opportunities abroad, including U.S. equities and cryptocurrencies.
The Bank for International Settlements reported the won’s real effective exchange rate at 87.05 in November, the lowest since 2009, indicating undervaluation. A lower real effective exchange rate benefits exporters but increases import costs, particularly for energy, raising inflationary concerns.
A weak won has both advantages and risks for South Korea’s economy. On the positive side, it boosts exports by making Korean goods more competitively priced abroad and supports profits for global corporations such as Samsung Electronics. However, there are notable downsides: import costs, particularly for energy, rise, which could push inflation above the central bank’s target if the trend continues. Additionally, a persistently weak won adds volatility to domestic financial markets and complicates efforts to fully liberalize South Korea’s foreign-exchange system.
While authorities continue to press domestic investors and institutions to support the won, the trend is unlikely to reverse quickly. Analysts suggest that unless domestic equities and investment opportunities regain appeal, capital outflows will persist. “The sustained outbound investments by Korean residents are driving won weakness, a trend not easy to reverse,” a senior government official reportedly noted.
