AI Chip Demand Drives Korean Won's Best Q3 Gain Since 1998
nashnova research
The Korean won surged roughly 13% against the dollar in Q3 2024 — its biggest quarterly gain since 1998 — powered by a flood of dollars into Korea's memory-chip exporters riding the global AI buildout; but Bank of Korea board member Hwang Kunil warns the pace has overshot expectations, and smaller firms are being squeezed from both sides.
Why did the won spike so sharply?
Global AI infrastructure buildout requires massive volumes of specialised memory chips. SK Hynix and Samsung Electronics are key suppliers — so billions of dollars are pouring into Korea, pushing the won up.
This means → the rally is not a classic trade-surplus story. It is a side effect of the global AI arms race.
Hwang expects Korea's 2024 current-account surplus to rise from the central bank's August forecast of $450 billion to near $500 billion, with chip exports as the single largest driver.
Why is the central bank uneasy about the speed?
Hwang was explicit: "What matters is volatility and the speed of change, not the absolute level."
In plain terms = the BOK does not fear a strong won — it fears a fast won. When the currency moves faster than exporters can reprice contracts, competitiveness gets cut overnight.
He acknowledged the AI boom "may last considerably longer," but cautioned that a slowdown in global AI spending could shave roughly $50 billion off the surplus — a direct hit to an export-led economy.
Who is paying the price for a strong won?
Large exporters can absorb the currency headwind thanks to AI-chip windfalls. Small and mid-sized firms cannot — they see none of the export boom but face the same high rates.
This reflects a deeper red flag: SME borrowing is not funding capital investment — it is covering wages, raw materials, and day-to-day operating costs, a sign of deteriorating balance-sheet quality.
Hwang's own words cut to the point: "The positive effects are limited to specific groups, while high rates and high prices affect everyone."
What will the central bank do next?
After two consecutive rate hikes, the BOK held steady this month at a benchmark rate of 3.00%, but did not rule out further tightening.
This means → policy is caught in a bind. Energy-price risks and economic resilience argue for more hikes; rapid won appreciation, SME stress, and sluggish consumption argue against.
Hwang voted against the August hike — he is widely seen as the board's most dovish member. His public warning on appreciation speed underscores a growing split inside the BOK on where policy goes from here.
When will inflation hit target?
Hwang expects headline CPI inflation to approach the BOK's 2% target by late H1 2027 and stabilise fully by late 2027 or early 2028.
In plain terms = won appreciation is actually helping on inflation — cheaper imports push prices down and may accelerate the path back to target.
But that creates a contradiction: the same currency strength that tames inflation also hurts exports and crushes smaller firms. The BOK cannot satisfy both sides at once.
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