"Calling them the 'five culprits of the currency collapse'...? Companies angry at the 'stigmatization' [Kim Ik-hwan's Ministry Hands Up]"

170 trillion won of corporate funds lying dormant in overseas coffers

"Overseas 'dollar hoarding' is merely a result"

The real variables that pulled down the value of the won are

"Weakening fundamentals·fiscal burden"

"Are companies really the ones that drove up the won–dollar exchange rate?"

Recently a chief financial officer (CFO) of a large company expressed frustration to a reporter. The government and some media have pointed to exporters, the National Pension Service, and Korean individual investors in US stocks as causes of the high exchange rate. Some experts and online communities even labeled them the "five culprits of the currency collapse."

Companies are accumulating retained earnings and hesitating to exchange currency abroad. They have piled up more than 170 trillion won in overseas retained earnings. However, many view this corporate behavior as a natural decision from the perspective of investment and risk management. The aforementioned large-company CFO retorted, "To invest in the US you need to secure dollars and respond to the won's weakness. Why should companies be criticized for holding dollars?"

According to the Bank of Korea on the 8th, Korean firms' overseas subsidiary retained earnings (reinvested earnings) have totaled 115.6243 billion dollars (170 trillion won) from January 1980, when related statistics began, through the end of October this year. Overseas retained earnings increased by 7.8 billion dollars (about 11 trillion won) this year, up 40.2% from the same period last year.

Reinvested earnings refer to amounts that foreign subsidiaries in which Korean companies hold a 10% or greater stake retain internally rather than repatriating as dividends to Korea or using for local investment. Overseas subsidiary retained earnings have shown a long-term increasing trend. In 2023, by exception, the change in overseas retained earnings recorded -12.783 billion dollars, marking a decrease for the first time in 25 years. That meant that dividends remitted domestically exceeded retained earnings held abroad. It was the first such occurrence since the 1998 foreign exchange crisis when companies were exerting every effort to secure foreign currency.

The decline in overseas retained earnings in 2023 coincided with amendments to the Corporate Tax Act implemented from 2023. From 2023 the system was changed so that 95% of dividends taxed abroad are tax-exempt domestically. Previously, dividends from foreign subsidiaries were subject to "double taxation," taxed both abroad and at home.

However, from 2024 retained earnings have turned to an increasing trend again, continuing a record-high run. Some argue that the tax-exempt ratio for overseas dividends should be expanded from the current 95% to 100% to encourage capital inflows to Korea. But foreign exchange market experts assess, "The effect would be about as meaningful as banning grilled mackerel to reduce fine dust."

Calls for fundamental solutions are also gaining traction. Voices are growing that the government and the Bank of Korea should concentrate policy capacity on improving economic fundamentals. The surge in money supply is also cited as a main cause of the won's weakness. In September, the money supply (M2·won series·average balance) was 4,426.3897 trillion won, an 8.5% increase from the same period last year. The M2 growth rate excluding investment trusts such as exchange-traded funds (ETFs) was also 6.3%, far outpacing major economies like the US and the eurozone in the same period.

As of October 1, the US M2 was 22,229.81 billion dollars, a 4.7% increase from the same period last year. This means Korea's money supply growth rate was much faster than that of major advanced economies.

Reporter Kim Ik-hwan lovepen@hankyung.com