7.7 million small business owners, small and venture corporations supporting the Korean economy are shaken. As the country escapes the long tunnel of COVID-19, which has disrupted daily life for over three years, an economic downturn caused by high prices and high interest rates continues, leading to a state of emergency. The exchange rate of the Korean won against the U.S. dollar has soared to 1,450 won. In a country with a high level of dependence on external factors, this kind of exchange rate fluctuation poses another threat to the survival of these businesses. CHOSUNBIZ examines the reality of small businesses and small and venture corporations in crisis and seeks solutions through expert roundtables. [Editor’s Note]
☞ [Crisis of small and medium enterprises] Order of articles① 'KIKO trauma' still present...exchange rate risks hit small and medium enterprises first② Closing wallets, South Korea ages...“Stagnant domestic demand, no exit in sight”③ Expert roundtable “Exchange rate of 1,400 won is the new normal, must ride the AI super cycle”
Corporation A, which imports coffee beans from Brazil and Vietnam, is struggling with high exchange rates. While exporting coffee can offset some losses, it is entirely dependent on domestic sales.
Representative A noted, “The operating profit margin is about 5%, but the exchange rate has risen by 10-20%, worsening profitability.”
However, the situation is not good for export corporations either. Corporation B, located in Chilgok County, Gyeongbuk, said that as the exchange rate rises, overseas buyers are demanding price reductions and delaying contracts.
As the exchange rate rises, the revenue of export corporations in won increases, allowing them to adjust contract conditions to profit at lower prices.
Recently, as the won-dollar exchange rate approaches 1,500 won (indicating a decline in the value of the won), small and medium enterprises are experiencing direct hits. The won-dollar exchange rate was in the 1,310 won range at the beginning of last year, but has surged to the 1,400 won range by December and continues to rise. Currently, it has surpassed the 1,450 won mark. The won-dollar exchange rate exceeding 1,450 won is the third highest since the 1997 IMF currency crisis and the 2009 global financial crisis.
This is interpreted as being due to the Federal Reserve's policy of slowing down interest rate cuts, compounded by political instability sparked by the state of emergency in the country.
Small and medium enterprises often import materials and sell them to consumers (B2C) or process intermediate goods to supply to large corporations. Unlike large corporations, which can offset rising import costs (foreign exchange loss) through foreign exchange gains from exports, small businesses often find natural foreign exchange hedging (risk avoidance) impossible.
According to the Small and Medium Venture Business Research Institute’s 'Analysis of Exchange Rate Risk in Small and Medium Enterprises,' the share of exchange rate risk (foreign exchange gains and losses) in operating profit among manufacturing SMEs can reach up to 25%. The tendency is that the larger the corporations' sales and export scale, the greater the proportion of this risk. It has also been shown that foreign exchange losses increase by approximately 0.36% for every 1% rise in the won-dollar exchange rate.
For corporations, the rise in exchange rates reduces cash reserves. Unlike large corporations, small businesses without retained earnings must cut back on investments in labor costs, materials, and more, leading to a downward spiral affecting product competitiveness.
To minimize exchange rate risks, foreign exchange hedging is essential, but research shows that one in two small enterprises is unprotected (Korea Federation of Small and Medium Enterprises). Even when managing foreign exchange risks, most have been limited to indirect responses such as price adjustments, cost reductions, and diversifying suppliers rather than engaging in hedging strategies such as futures or insurance.
The reason for not signing up for foreign exchange hedging products is attributed to the trauma from the KIKO incident in 2008, which shook the small business sector.
KIKO was a derivative product that banks sold intensively to export small and medium enterprises to reduce currency fluctuation risk, but with skyrocketing exchange rates due to the global financial crisis, 919 corporations are estimated to have suffered damages exceeding 3 trillion won. At that time, many corporations went bankrupt or were sold, and some are still engaged in legal actions against banks.
The Ministry of Small and Medium Enterprises announced in its 2025 business report that it will inject about 1.5 trillion won in emergency management funds for small and medium enterprises affected by rising exchange rates. It also plans to support the cost of joining foreign exchange insurance. However, this is viewed as merely a temporary measure to quell companies facing liquidity crises and not a fundamental solution.
Vice Minister Kim Seong-seob also noted, “Since the exchange rate has already risen significantly, there is mixed judgment on whether it will continue to rise or fall in the long term,” and added, “We will have to observe how many small and medium enterprises will join insurance to prepare for foreign exchange risks.”
In a situation where the direction of the exchange rate is uncertain, the only method available for current small and medium enterprises is to switch raw material import contracts to short-term agreements. Currently, many use a system where goods are received on credit and paid for 3-6 months later, which is being shortened.
Experts unanimously state that now is the most critical time for 'predictability of exchange rates.'
Chumoon-gap, head of the Economic Policy Department at the Korea Federation of Small and Medium Enterprises, said, “As economic difficulties compound with political uncertainty, the outlook on exchange rates is becoming unpredictable,” and added, “The Korea-U.S. currency swap, which allows immediate exchange of foreign currency within the agreed amount, would be the best way to provide psychological stability regarding exchange rates.”