The government has been explaining that the reason the won-dollar exchange rate has continued to stay above 1,500 won is because foreigners are selling Korean stocks on a large scale. But it also turned out that in the first quarter of this year, the amount of dollars our corporations have kept tied up overseas increased more than threefold compared with the first quarter of last year. Some note that if this situation intensifies, it could work to push the exchange rate higher.
The Bank of Korea (BOK) classifies dollars that our corporations' overseas subsidiaries, in which they hold at least 10% equity, have set aside without using for domestic dividends or local investment as "reinvested revenue income."
According to the Bank of Korea (BOK) on the 26th, "reinvested revenue income" in January–March came to $4.2 billion (about 6.3 trillion won), more than tripling from the same period last year ($1.35 billion, about 2 trillion won).
Previously, the Bank of Korea (BOK) began compiling "reinvested revenue income" on a monthly basis in 2023. On a first-quarter basis, it was negative in both 2023 (-$3.6 billion) and 2024 (-$1.5 billion). This means overseas subsidiaries of domestic corporations paid more dollars to Korea as dividends or invested more overseas than they earned locally.
Since then, "reinvested revenue income" has increased, and this coincides with the period when the won-dollar exchange rate rose. In the first quarters of 2023 and 2024, the exchange rate moved in the 1,200–1,300 won range, and during this period "reinvested revenue income" was negative. By contrast, in the first quarter of last year it rose to the mid-1,400 won range, and this year it surpassed 1,500 won from mid-March. As that happened, "reinvested revenue income" has repeatedly turned positive.
A foreign exchange market official said, "As uncertain economic conditions such as the Middle East war persist, corporations appear to judge that it is advantageous to keep holding dollars, a relatively safe asset."
If domestic corporations sell the dollars they earned overseas in the foreign exchange market and convert them into won, it can work to push down the won-dollar exchange rate. But if the amount of dollars corporations keep tied up overseas grows, it acts as a factor that pushes the exchange rate up.
The government has offered tax benefits to bring in dollars that corporations have kept tied up overseas, but some analyses say the impact has been limited. In 2023, the government revised the system so that 95% of dividends taxed overseas would be tax-exempt domestically. Previously, dividends from overseas subsidiaries were taxed both abroad and at home. Furthermore, starting this year, that ratio was changed to 100%. Having judged that the 95% tax exemption was not sufficient, it effectively raised it one step to a full 100% exemption.