South Korea's foreign-currency deposits plummeted by a record amount in March, as companies rushed to convert holdings into local currency amid a sharply weakening won. According to Bloomberg Markets, this slide reflects heightened pressure on the Korean currency, which has tumbled to multi-year lows, prompting businesses to shield against further losses.
The won's depreciation accelerated due to a combination of global factors, including escalating Middle East tensions, heavy foreign selling in Korean stocks, and a robust U.S. dollar. Reports from Korea JoongAng Daily indicate the currency nosedived to an average of 1,505.62 won per dollar last week—the weakest level in 17 years, surpassing even marks from the 2009 global financial crisis and nearing 1998 Asian crisis territory. Foreign investors offloaded a record 30 trillion won ($20 billion) from the Kospi benchmark in March alone, as noted by Korea Exchange data, exacerbating the downturn.
This currency weakness stands in stark contrast to robust demand for South Korean exports, particularly in AI-related semiconductors. Bloomberg Economics highlights that Korea's chip exports surged 183% despite energy supply challenges, underscoring the economy's resilience in tech sectors. Meanwhile, retail investors have piled into leveraged bets on Korean equities, pushing them to record highs amid a rally in chip stocks driven by the AI boom, as reported by Bloomberg Markets.
The broader market dynamics reveal shifting investor behaviors and structural changes. In a related development, Alvarez & Marsal is launching a dedicated restructuring practice in South Korea, anticipating a wave of market-driven corporate overhauls as the country moves away from state-led bailouts. Although not directly tied to currency moves, this pivot signals confidence in the economy's adaptability amid volatility.
For those affected—exporters, importers, and households—the weak won boosts competitiveness abroad but inflates import costs, potentially fueling inflation. The Bank of Korea has seen record profits from foreign exchange gains, per Chosun Biz, yet government measures have so far failed to halt the slide, according to The Korea Times. Looking ahead, analysts warn the won could breach 1,500 per dollar if geopolitical risks persist, with authorities tempering interventions to avoid depleting reserves, which remain ample at over $430 billion. Markets will watch upcoming export data and U.S. policy signals for clues on stabilization.
