The South Korean government is urgently advancing legislation to stabilize the sharply depreciating won.
This move was triggered by a perfect storm of market turmoil in early March 2026. The won weakened past the critical 1,500 per U.S. dollar threshold for the first time since 2009, oil prices surged above $100 a barrel due to escalating conflict in Iran, and the Korean stock market (KOSPI) plummeted, even triggering circuit breakers. This created a crisis atmosphere that demanded immediate action.
The root cause is twofold. First, the external shock from the Middle East conflict drove a global flight to safety, strengthening the U.S. dollar. For a country like Korea, which heavily relies on imported energy, a spike in oil prices directly translates into higher demand for dollars to pay for it, putting downward pressure on the won.
Second, this pressure was amplified by a domestic factor: the massive offshore stock holdings of Korean retail investors, often called '서학개미' (Seohak Gaemi). Their consistent demand for dollars to buy foreign stocks has become a structural pressure point. In a crisis, this dynamic can create a feedback loop where a weaker won makes foreign assets seem more attractive, further increasing dollar demand.
To counter this, the government's response is a package of three bills nicknamed the "FX-stability three." The centerpiece is the Return-to-Domestic-Market Investment Account (RIA). It offers a powerful incentive: investors who sell their foreign stocks and reinvest the money into the Korean market for at least a year can receive a significant tax deduction on their capital gains. The package also includes tax breaks for currency hedging and for corporations repatriating foreign profits.
The logic is straightforward. By encouraging investors and companies to sell their dollar-denominated assets and bring that money back home, the policy aims to increase the supply of U.S. dollars within the Korean market. When more dollars are being sold to buy won, it naturally helps support the won's value and stabilize the exchange rate.
While these measures are not a cure-all, they are a timely tool in the government's stability toolkit. The ultimate success will depend on broad participation from investors and, crucially, a stabilization of the external environment, particularly oil prices. It’s a strategic move to manage demand while longer-term structural reforms, like the upcoming 24-hour FX market, are put in place.
- Return-to-Domestic-Market Investment Account (RIA): A special temporary account offering tax deductions on capital gains from foreign stock sales if the proceeds are reinvested in the Korean market.
- 서학개미 (Seohak Gaemi): A Korean colloquial term for individual retail investors who actively invest in overseas stocks, particularly those listed in the United States.
- Circuit Breakers: Temporary trading halts on a stock exchange imposed to curb panic-selling and excessive volatility.