South Korean Won Recovery Tied to Internationalisation Roadmap, DBS Says

The South Korean won is showing signs of recovery, supported by the government’s ongoing internationalisation roadmap, according to a recent analysis from DBS Bank. The assessment comes as the won, which has faced pressure from global monetary tightening and geopolitical tensions, finds renewed support from structural policy changes aimed at increasing its global usage.

DBS Analysis Highlights Policy-Driven Support

DBS analysts point to South Korea’s strategic push to internationalise the won as a key factor underpinning its recent resilience. The roadmap, which includes measures to liberalise capital accounts and promote the won in trade settlements, is seen as a long-term positive for the currency. This policy direction contrasts with previous periods where the won was more vulnerable to external shocks, providing a new layer of fundamental support.

Context of the Won’s Recent Performance

The won had weakened significantly in 2022 and early 2023 due to the US Federal Reserve’s aggressive interest rate hikes and a flight to safe-haven assets. However, as the Fed’s tightening cycle shows signs of peaking and South Korea’s current account surplus stabilises, the won has regained some ground. DBS’s analysis suggests that the internationalisation roadmap adds a structural bullish factor that could help sustain this recovery beyond cyclical improvements.

Implications for Traders and Policymakers

For currency traders, the DBS report signals that the won may be entering a phase where policy-driven demand complements traditional trade and interest rate factors. For South Korean policymakers, the successful execution of the roadmap is crucial not only for currency stability but also for elevating the won’s status in global finance. The roadmap includes steps like expanding won-denominated bond issuance and encouraging foreign investment in local markets.

Conclusion

The South Korean won’s recovery, as highlighted by DBS, is not merely a reaction to global rate expectations but is increasingly tied to domestic structural reforms. The internationalisation roadmap provides a credible narrative for sustained currency strength, though execution risks remain. The coming months will test whether policy ambition can translate into lasting market confidence.

FAQs

Q1: What is the South Korean won internationalisation roadmap?
A: It is a government-led initiative to increase the won’s use in international trade, finance, and as a reserve currency. Measures include liberalising capital flows and promoting won-denominated assets.

Q2: How does DBS view the won’s recovery?
A: DBS analysts see the recovery as supported by the internationalisation roadmap, providing structural support beyond typical cyclical factors like interest rate differentials.

Q3: Why is this important for investors?
A: A stronger, more internationally accepted won can reduce exchange rate risk for investors in South Korean assets and potentially lead to more stable capital inflows.