South Korea is one of the world’s most open economies, with trade accounting for roughly 75% of GDP, and it depends entirely on imports for energy. In this structure, exchange-rate stability is not merely an economic policy issue but a matter of national resilience.
When the won weakens, import prices rise, energy and raw-material costs surge, and pressure mounts on both corporate competitiveness and household finances.
The won–dollar exchange rate has recently steadied around 1,440 won, but volatility remains elevated. When the rate surged to 1,480 won not long ago, fears of a renewed foreign-exchange crisis spread quickly among policymakers and the public alike.
The government responded by adjusting the pace of the National Pension Service’s overseas investment, managing capital flows and taking steps to stabilize dollar supply and demand. These measures helped restore short-term calm, but they were closer to stopgap interventions than lasting solutions.
Over the long term, South Korea’s exchange rate has followed a structurally upward path. The won traded around 200 to the dollar in the 1970s, approached 2,000 during the 1997 foreign-exchange crisis, and climbed to roughly 1,600 during the 2008 global financial crisis. The recent return toward the 1,480 level has revived public anxiety that another crisis could emerge, a reminder that without structural reform, external shocks have a tendency to repeat.
Foreign-exchange crises are not unique to South Korea.
Argentina is now facing its 10th such crisis, and as of January around 10 countries — including Pakistan, Sri Lanka and Argentina — were receiving bailout support from the International Monetary Fund. Currency instability remains a recurring vulnerability for open economies that lack sufficient buffers.
South Korea’s risk of a foreign-exchange crisis can be placed at roughly 30%, which means both the government and the National Assembly must pursue structural measures to stabilize the currency.
Foreign-exchange reserves — the country’s last line of defense — should be expanded to at least $930 billion. South Korea currently holds about $430 billion, equivalent to roughly 22% of GDP. Taiwan, by contrast, holds around $600 billion, or about 77% of GDP. Ample reserves were a key reason Taiwan weathered the 1997 Asian financial crisis with relative stability.
Currency swap lines with Japan and the United States should also be expanded, as they provide a critical financial backstop that allows rapid access to foreign currency during periods of stress. During the 2008 global financial crisis, the South Korea–U.S. swap line was expanded to $60 billion and the South Korea–Japan swap line to $70 billion, playing a decisive role in stabilizing the exchange rate. International financial markets reward preparation and punish complacency.
Fiscal discipline is equally essential. South Korea’s official national debt ratio stands at 52%, but when military and civil-service pensions and public-enterprise debt are included, the effective burden is estimated at around 130%. Even on a central-government bond basis, the ratio is projected to approach 60% by 2029. The International Monetary Fund classifies non-reserve-currency countries as risky once debt exceeds 60% of GDP, underscoring that fiscal soundness is a core condition for exchange-rate stability.
Exchange-rate stability is not solely the government’s responsibility. Individuals must also prepare by holding dollar-denominated assets. A portfolio weighted toward high-quality U.S. equities, complemented by exposure to leading South Korean companies, can help hedge against a weaker won and the risk of a foreign-exchange crisis.
Exchange-rate stability underpins confidence in South Korea’s economy and its long-term sustainability. Structural preparation, not crisis management, is the only durable defense.
* The author is a business administration professor at Sejong University.
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