Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
Time for won to catch up with Korea's economic role: Deutsche Bank
People line up to exchange currency at Incheon International Airport, Aug. 2. Yonhap
By Lee Yeon-woo
Investment bank says won still 10% undervalued despite hefty current account surplus
Korea accounts for roughly 2 percent of global gross domestic product (GDP), ranks among the world's largest exporters of advanced manufactured goods and is home to strategically important industries. Yet its currency plays a modest financial role relative to the country's economic and industrial weight, according to Deutsche Bank, Friday.
In two recent Asia thematic strategy notes, the investment bank said Korea sits at the intersection of three key structural forces: ally-shoring, artificial intelligence (AI) infrastructure investment and diversification away from China-related supply risks.
These forces are likely to persist for years, directing capital toward industries where Korea already possesses scale, technological leadership and established industrial ecosystems, including semiconductors, batteries, shipbuilding, defense and robotics, the bank said.
"The world is increasingly investing in the industries where Korea already leads," said Perry Kojodjojo, an Asian FX strategist at Deutsche Bank. "Manufacturing value added, high-tech exports and current account balances compare favorably with most regional peers."
Despite those strengths, the Korean won remains undervalued relative to fundamentals, contrasting with historical patterns in which improvements in external balances have often been accompanied by stronger currencies and greater financial strength.
Deutsche Bank estimates that the won is undervalued by about 10 percent on a trade-weighted basis. Korea's current account surplus is expected to reach 10.3 percent of GDP this year, well above its long-run average of around 3.5 percent.
The won weakened to as low as 1,559.2 per dollar on July 1, briefly approaching the 1,560 level. But it reversed course just two trading days later, strengthening by 125.4 won, or 8.81 percent, against the dollar over the month from its June 30 close of 1,549.4 won.
The rally, supported by increased dollar selling by exporters and inflows linked to SK hynix’s American depositary receipt issuance, marked the won’s strongest monthly performance since March 2009. The currency has since been trading in the low 1,400s, ending onshore trading at 1,416.1 per dollar, up 7.7 won from the previous session, on Friday.
Deutsche Bank logo is seen in this illustration taken December 2025. Reuters-Yonhap
Still, analysts caution that the rally may be cyclical rather than structural. Longer-term forces putting upward pressure on the won-dollar exchange rate, including growing overseas investment by Korean residents, are becoming more entrenched, making a return to the previous 1,200-to-1,300 range increasingly difficult.
The valuation gap is only one part of the broader mismatch Deutsche Bank sees. The won also remains underused in international transactions. It accounts for about 0.9 percent of global foreign-exchange turnover, ranking around 12th globally.
Less than 3 percent of Korean exports are settled in won, compared with about 87 percent in dollars and 5 percent in euros. Even among exports not settled in U.S. dollars, only around 19 percent are settled in won, compared with approximately 70 to 80 percent in the domestic currencies of economies such as Japan and Australia.
"Its role in international payments, funding markets and reserve holdings remains considerably smaller than Korea's relative quantum," Kojodjojo said.
Against that backdrop, Deutsche Bank viewed the government's July road map to internationalize the won positively, seeing it as an effort to make the currency more widely usable internationally.
The key risk is when infrastructure improves while adoption remains limited, the bank said. That could make the won easier for international investors and institutions to access without materially increasing its use in global trade, funding or reserves.
"The objective is therefore not simply a more international currency, but a financial system that more closely reflects Korea's growing role in the global economy," Kojodjojo said.