Strong Franc, Weak Won: How Two Export Nations Succeeded in Opposite Monetary Universes

Economists often speak about exchange rates as if there were a universally correct answer. A strong currency is supposedly a sign of economic success. A weak currency is often portrayed as a symptom of weakness. Yet when one looks at two of the world's most successful export nations, Switzerland and South Korea, this neat theory starts to fall apart.

Switzerland has one of the strongest currencies on the planet. South Korea has spent much of its modern economic history with a comparatively weak currency. Both countries are export powerhouses. Both transformed themselves into global success stories. And both demonstrate that exchange rates matter far less than many people think.

The Swiss headache

If you work for a Swiss exporter, a strong Swiss franc can feel like a chronic medical condition. Imagine you manufacture precision machinery in Switzerland and sell it to customers in Germany. When the Swiss franc appreciates against the euro, your products instantly become more expensive for German buyers. Unless you have a monopoly or you cut prices, you risk losing business. If you do cut prices, your profit margins shrink.

This is why every major appreciation of the franc is greeted with a mixture of concern, panic and predictions of doom. I remember the shock in 2015 when the Swiss National Bank abandoned the minimum exchange rate against the euro. The franc surged. Headlines warned of catastrophe. Exporters complained loudly. Economists produced charts that looked vaguely apocalyptic.[1]

Yet Switzerland continued exporting. Not only that, the country continued running one of the world's largest trade surpluses relative to the size of its economy.

The reason is that Swiss companies rarely compete on price alone. Nobody buys a luxury watch because it is cheap. Nobody chooses specialised pharmaceutical products because they are a bargain. Nobody acquires highly specialised industrial equipment because it saves a few percent compared to a competitor. Swiss firms survive because – somewhat out of necessity – they focus on selling quality, reliability, intellectual property and trust. 

A stronger franc is painful, but it forces companies to innovate, automate and move further up the value chain. In some respects, the strong currency acts like a particularly demanding fitness coach who never allows anyone to skip leg day.

Korea's different route

South Korea followed a very different path. When the Korean War ended in 1953 (or rather when the ceasefire that is still in place today came into effect), South Korea was one of the poorest countries in the world. Few people looking at the devastated peninsula would have predicted that it would one day become home to global giants such as Samsung, SK Hynix, Hyundai and LG.

The so-called "Miracle on the Han River" was built on industrialisation, exports and extraordinary determination. As I observed while living in Seoul, Korea developed a culture where speed and execution are deeply valued. The famous bballi-bballi mentality – roughly translated as "hurry hurry" – permeates business and everyday life alike.

A relatively weak won helped support this export-led development model. When Korean companies sold ships, cars, electronics and industrial products overseas, a weaker currency made their goods more competitive. Foreign buyers could obtain more Korean products for the same amount of dollars, euros or yen. This provided a tailwind during the decades when Korea was climbing the industrial ladder.

But it would be a mistake to conclude that Korea succeeded because of a weak currency. If weak currencies automatically created prosperity, Argentina would be an economic superpower.

The relatively weak won helped, but the real drivers were investment, education, infrastructure, industrial policy and a workforce willing to put in astonishing effort. The chaebols became globally competitive because they built products the world wanted to buy, not because exchange rates magically solved all problems.

Why neither side tells the full story

Currency debates often resemble football arguments. Supporters pick a side and defend it with religious conviction. The strong-currency camp points to Switzerland, the weak-currency camp points to South Korea. Both miss the bigger picture.

A weak currency offers advantages during industrial catch-up. It makes exports more competitive and can help emerging industries gain market share abroad. A strong currency offers different advantages. It reduces the cost of imports, lowers inflationary pressure and encourages companies to focus on productivity rather than competing solely on price.

But neither model guarantees success. The real question is what a country does with the advantages it has. Switzerland used a strong currency as a forcing mechanism to move into high-value industries. Korea used a weaker currency as one component of a broader export-driven growth strategy. In both cases, exchange rates were supporting actors rather than the main characters.

The hidden danger of currency obsession

One of the more curious tendencies in economic discussions is the belief that prosperity can somehow be engineered through exchange-rate management alone. Politicians occasionally behave as if a weaker currency is a free lunch. It is not!

A persistently undervalued currency can make imports more expensive, reduce purchasing power and discourage necessary productivity improvements. Companies become accustomed to competing on price rather than innovation. Likewise, an excessively strong currency can become a burden if businesses are unable to adapt.

The exchange rate is therefore best viewed as a tool rather than an objective. A carpenter would not judge the quality of a house solely by looking at the hammer. The same logic applies to national economies.

What Switzerland and Korea really teach us

The comparison between Switzerland and South Korea reveals that successful export nations do not succeed because of their currencies. They succeed despite the challenges their currencies create.

Swiss firms learnt to thrive with one of the strongest currencies in the world. Korean firms learned to leverage the advantages of a weaker currency while steadily moving into more sophisticated products and technologies. In both countries, the decisive factors were not found in foreign-exchange markets. They were found in factories, laboratories, universities and boardrooms.

Exchange rates matter, but they matter less than productivity, innovation, education and the ability to adapt. The Swiss franc and the Korean won took different paths. Yet both countries arrived at the same destination: becoming successful export nations.

[1] https://www.intereconomics.eu/contents/year/2015/number/2/article/currency-interventions-effective-policy-tool-or-shortsighted-gamble.html#:~:text=The%20Swiss%20National%20Bank's%20January,of%20stagnation%20%C3%A0%20la%20Japan.

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