After the U.S. Secretary of the Treasury made remarks supporting the value of the Korean won, the won-dollar exchange rate sharply reversed course within a day, falling to the 1,460 won level. The verbal intervention by the head of the U.S. Treasury Department suggested the possibility that Korea’s foreign exchange authorities may step in for direct market intervention again, playing a role in curbing the recent overheated market. As real demand for the dollar continues, the value of the won is expected to remain volatile for the time being due to factors such as continued net selling by foreign investors in the domestic stock market and settlement transactions by exporters and importers. The government has launched an interagency task force to crack down on illegal dollar outflows by exporters and individuals, aiming to defend the value of the won.
Scott Bessent, Secretary of the Treasury (left), and Koo Yoonchul, Deputy Prime Minister and Minister of Economy and Finance, are posing for a commemorative photo on the 12th (local time) in Washington DC. Secretary Bessent X
According to the Ministry of Economy and Finance on January 15, U.S. Treasury Secretary Scott Bessent pointed out the previous night that the recent depreciation of the won “does not align with Korea’s strong economic fundamentals,” emphasizing that “excessive volatility in the foreign exchange market is undesirable.” His remarks indicate that the recent weakness of the won is largely due to market volatility rather than concerns about Korea’s economic fundamentals. He also reaffirmed that “Korea’s strong economic performance in key industries that support the U.S. economy makes Korea a core partner for the United States in Asia.”
Secretary Bessent’s remarks came just two days after Koo Yoonchul, Deputy Prime Minister and Minister of Economy and Finance, met with him in Washington, D.C. on January 12 (local time) to discuss the recent situation in Korea’s foreign exchange market. The bilateral meeting took place on the sidelines of the G7 Core Minerals Finance Ministers’ Meeting held on the same day.
It is extremely rare for the U.S. Treasury Secretary to make comments that intervene in another country’s foreign exchange market. Although the finance ministers of Korea, the United States, and Japan jointly responded to exchange rates at the G20 Finance Ministers’ Meeting in April 2024, it was not a U.S.-led verbal intervention. In the past, when Japanese Finance Minister Shunichi Suzuki requested intervention to support the yen during Janet Yellen’s tenure as U.S. Treasury Secretary, Yellen expressed reluctance, stating that “the United States prefers exchange rates determined by market principles.” U.S. intervention in the value of another country’s currency has typically focused on criticizing deliberate devaluation or strong action against currency manipulation, rather than supporting another country’s currency.
On the 12th (local time), Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul and U.S. Treasury Secretary Scott Bessent held a meeting. (Source: Ministry of Economy and Finance)
Given that Korea’s foreign exchange authorities have been engaging in direct and indirect intervention to prevent one-sided movements in the exchange rate, Secretary Bessent’s remarks are interpreted as supporting Korea’s determination to defend the won. This is based on the judgment that excessive depreciation of the won could be burdensome for both sides, especially as annual investments in the United States of 20 billion dollars are set to proceed from this year following the results of the Korea-U.S. tariff negotiations.
The market reacted immediately to the U.S. Treasury Secretary’s comments supporting the value of the won. On this day, the won-dollar exchange rate opened at 1,465.0 won in the domestic foreign exchange market, down 12.5 won from the previous session. The won-dollar exchange rate, which had been rising for ten consecutive days since the beginning of the new year, dropped by nearly 10 won in after-hours trading immediately following Secretary Bessent’s remarks. Compared to the previous day’s closing price of 1,477.5 won, the rate fell by 13.5 won in less than a day.
The authorities are mobilizing all available measures to defend the value of the won and stabilize the market. On this day, the Ministry of Economy and Finance activated the “Interagency Task Force on Illegal Foreign Exchange Transactions,” comprising six agencies including the National Intelligence Service, Financial Supervisory Service, Bank of Korea, National Tax Service, and Korea Customs Service, to manage the supply and demand that has been focused on dollar outflows. Following foreign exchange inspections of exporters, the authorities also plan to identify and block abnormal cases of dollars flowing overseas through illegal foreign exchange transactions by individuals.
Starting with the kickoff meeting on this day, monthly meetings chaired by bureau directors will select collaborative tasks and carry out targeted crackdowns. The main targets of investigation include so-called “hwanchigi” (cross-border payments made without going through foreign exchange banks), export-import price manipulation, false reporting to facilitate overseas asset flight, offshore tax evasion, and money laundering by exploiting foreign exchange transaction procedures. The government had previously operated a temporary interagency task force during the spike in exchange rates triggered by the Legoland crisis in 2022. An official from the Ministry of Economy and Finance noted, “Funds disguised as trade transactions or transferred overseas through hwanchigi have increased rapidly in recent years.” According to the Korea Customs Service, the number of illegal foreign exchange transaction cases cracked down on surged by more than 18% year-on-year to 1,281 as of the end of November last year, compared to 1,082 cases the previous year.
The government’s decision to launch a high-intensity investigation into companies and individuals stems from the assessment that the amount of illegal foreign exchange transactions surged last year as the high exchange rate became entrenched. However, some point out that crackdowns alone cannot fundamentally solve the problem, as the sharp increase in overseas asset outflows reflects structural phenomena such as pessimism about the domestic market and increased corporate investment in the United States. Since the end of last year, the government has introduced a range of foreign exchange market stabilization measures, including promoting dollar conversion by exporters, currency hedging by the National Pension Service, capital gains tax cuts for overseas stock investors returning home, and exemptions from foreign exchange soundness charges. However, these measures have failed to have a lasting effect, with their impact fading in less than a month.
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