The government says the recent 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 in the first quarter of this year, the dollars that our corporations have kept parked overseas also increased to more than three times the amount in the first quarter of last year. Some note that if this situation deepens, it could work to push the exchange rate higher.
The Bank of Korea (BOK) classifies the dollars that overseas subsidiaries, in which our corporations hold at least 10% equity, have accumulated without using for domestic dividends or local investment as "reinvested revenue income."
On the 26th, according to the Bank of Korea (BOK), "reinvested revenue income" in Jan.–Mar. 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).
Earlier, the Bank of Korea (BOK) began compiling "reinvested revenue income" on a monthly basis starting 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 back home as dividends or invested more overseas than they earned locally.
Since then, "reinvested revenue income" has increased, which 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. In contrast, the exchange rate rose to the mid-1,400-won range in the first quarter of last year, and this year it exceeded 1,500 won from mid-March. As that happened, "reinvested revenue income" has also repeatedly been in the black.
A foreign exchange market official said, "As uncertainty in the economic environment continues, including the war in the Middle East, corporations appear to judge that it is advantageous to keep holding dollars, which are a relatively safe asset."
If domestic corporations sell the dollars they earned overseas in the foreign exchange market to convert them into won, it can be a factor that lowers 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 draw into the country the dollars corporations have kept tied up overseas, but analysts say the effect has been limited. In 2023, the government changed 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, it changed the ratio to 100%. Judging that a 95% exemption was not sufficient, it effectively raised it one notch to a 100% exemption.