The won-dollar exchange rate, which had hovered above 1,500 won for three weeks, surged past 1,540 won during trading Thursday — the first time since the global financial crisis. Financial authorities convened an emergency "F4" meeting — bringing together the deputy prime minister for economic affairs, the Bank of Korea governor, the Financial Services Commission chairman and the Financial Supervisory Service chief — and issued forceful verbal warnings, but to no avail. The prolonged Middle East war, heavy foreign selling of Korean equities and mounting US tariff risks combined to drive the won lower. Alarming forecasts have begun to circulate that the rate could climb into the 1,600-won range. Because a weak won is a trigger for higher inflation and higher interest rates, the government must treat this situation with exceptional vigilance.

On Thursday, the won opened at 1,530.0 per dollar in the Seoul foreign exchange market, up 13.6 won from the previous session. That was the first time it had started above 1,530 won since March 2009, during the global financial crisis — a gap of 17 years and three months. After the after-hours session opened, the rate broke through 1,540 won, also a first since 2009. Judged by the exchange rate alone, the Korean economy is in a state of emergency. However, as Kim Yong-beom, the Cheong Wa Dae policy chief, said, the current won weakness does carry some character of "friction from a leap forward." Corporate earnings and exports, riding a semiconductor supercycle, are setting all-time highs, and foreign investors who had poured into the Korean stock market as it shed its Korea Discount have been taking profits — a dynamic that has itself weakened the won. Adding to the pressure, US-Iran end-of-war negotiations have stalled, and the Office of the United States Trade Representative announced it would impose an additional 12.5 percent tariff on Korea after including it on a list of trading partners that allow goods produced with forced labor.

The exchange rate is shaped by a complex web of variables — from external shocks beyond Korea's control, such as a war-driven oil shock and the interest rate gap between Korea and the United States, to assessments of the Korean economy's underlying fundamentals. In the near term, authorities need to manage effectively the factors driving foreign exchange volatility. The anticipated mega initial public offerings of so-called big-tech giants — SpaceX, valued at $2 trillion, and Anthropic, valued at $1 trillion — are emerging as a fresh source of downward pressure on the won. When those companies list, a large outflow of domestic investment capital is likely to push the won even lower.

Monetary authorities have deployed a range of measures to counter the high exchange rate — including a foreign exchange swap arrangement with the national pension fund and a domestic equity return account, or RIA, that offers retail investors an exemption from capital gains tax on overseas holdings — but the impact has been limited. At a broader level, the government is also exploring a Korea-US monetary swap, though no tangible results have emerged. Short-term tools are running up against their limits, and no game-changing card has been found to shift market sentiment, leaving the 1,500-won range looking increasingly like a new normal. This is a moment that calls for creative policy to break the impasse. Ultimately, the fundamental remedy must be to raise Korea's potential growth rate and secure the confidence of international markets.


mhj@heraldcorp.com