Why Did South Korea’s 1962 Currency Reform Fail? ― Park Chung-hee, Lee Byung-chul, and Chinese Capital

The South Korean Economy in the 1960s: Emerging from the Scars of War and Poverty

In the early 1960s, South Korea was one of the poorest countries in the world.

The country had yet to fully recover from the devastation of the Korean War, its industrial base remained weak, and domestic capital available for economic development was scarce.

For the military government led by Park Chung-hee, which seized power in the May 16 military coup of 1961, one of the most urgent challenges was securing the funds needed for economic development.

At the time, however, the government believed that a substantial amount of money was being kept outside the formal banking system.

It assumed that these so-called “hoarded funds,” held by business owners, wealthy individuals, and within the private money-lending market, could be brought into the formal financial system and mobilized by the state to finance industrial development.

It was against this backdrop that South Korea introduced its third currency reform in 1962.

Park Chung-hee, Chairman of the Supreme Council for National Reconstruction, announcing the 1962 currency reform

1. Ten Hwan Became One Won

On June 10, 1962, South Korea’s military government abruptly implemented an emergency currency measure.

The existing currency unit, the hwan (圜), was replaced by the won (圓), which remains South Korea’s currency today, and new currency was issued at the exchange rate of:

10 hwan = 1 won

The won as South Korea’s currency unit has remained in use since this reform (Bank of Korea, n.d.).

However, the reform was not simply a redenomination that changed the currency unit.

The government required old currency and various other means of payment to be deposited with financial institutions and restricted access to funds exceeding certain permitted amounts.

The objective was to uncover money held outside the banking system, bring it into the formal financial sector, and mobilize it as industrial capital for economic development (Bank of Korea, n.d.).

2. Why Did the Park Chung-hee Government Try to Find “Money Hidden in the Closet”?

One of the greatest challenges facing the South Korean government as it pursued economic development was a severe shortage of capital.

Building factories and expanding infrastructure such as roads and power plants required enormous amounts of money.

Yet domestic savings and capital accumulation remained insufficient.

Despite these constraints, the government believed that substantial amounts of money were circulating outside formal financial institutions.

Park Chung-hee and Military Leaders Discussing Economic Policy

In particular, the government believed that if it could bring into the formal financial system the hoarded funds thought to be held by business owners, wealthy individuals, and the private money-lending market, it could secure investment capital needed for the Five-Year Economic Development Plan.

Some interpretations also suggest that funds believed to be held by Korea’s ethnic Chinese community were among the sources of capital outside the formal financial system that attracted government attention.

It has also been argued that the Park Chung-hee government was wary of the possibility that ethnic Chinese capital could gain substantial influence over commerce and distribution, as had occurred in several Southeast Asian countries.

However, caution is needed in claiming that eliminating ethnic Chinese capital was the sole or official objective of the 1962 currency reform.

The more clearly established policy objective was to draw broadly dispersed hoarded funds into the formal financial system and mobilize them as industrial capital (Ryu, 2020; Bank of Korea, n.d.).

3. But Lee Byung-chul Saw the Situation Very Differently

Lee Byung-chul, the founder of Samsung, was skeptical of the government’s assessment.

While the government believed that enormous amounts of money were hidden somewhere in South Korean society, Lee argued that such a large pool of capital had simply not accumulated in the country in the first place (Lee, 1986).

Lee Byung-chul, Founder of Samsung, Expressing Concerns About the 1962 Currency Reform

At the time, many businesses were far from sitting on large piles of cash. Instead, they had to obtain operating funds through banks and the private money-lending market.

Under these circumstances, freezing corporate cash and bank deposits was unlikely to generate new industrial capital. Rather, it risked disrupting the flow of funds that businesses needed for their everyday operations.

Companies had to purchase raw materials, pay workers’ wages, and settle payments with suppliers.

If the money they needed for these transactions was suddenly frozen, even otherwise healthy businesses could find it difficult to continue operating normally.

If the government’s thinking was:

“Let us uncover hidden money and use it for economic development,”

Lee Byung-chul’s view was essentially:

“South Korea simply does not have that much accumulated capital to mobilize in the first place.”

4. The “Money Hidden in the Closet” Was Not There in the Amount the Government Expected

The government expected the currency reform to bring a massive amount of hoarded funds into the open.

In practice, however, the results fell short of expectations.

The large volume of funds anticipated by the government did not flow into the formal financial system. Instead, restrictions on the use of cash and bank deposits disrupted the flow of funds available to businesses and merchants.

In other words, a policy designed to generate funds for economic development ended up freezing even the flow of money that had already been circulating through the economy.

The Park Chung-hee Government Confronts the Failure of the 1962 Currency Reform

In the end, the government was unable to maintain the freeze for long and quickly eased the restrictions.

The Bank of Korea has also concluded that the 1962 emergency currency measure failed to achieve its intended economic objectives (Bank of Korea, n.d.).

Ultimately, the central idea behind the currency reform—uncovering large amounts of hoarded funds and mobilizing them as industrial capital—effectively failed.

5. The Shock of the Currency Reform Spread into the Daily Lives of Ordinary People

The problem was not limited to financial difficulties faced by businesses.

At the time, South Korea was not yet a society with credit cards or electronic payments as it is today. Market transactions, wage payments, and everyday purchases therefore depended heavily on cash.

As a result, when access to cash and bank deposits was suddenly restricted, the disruption quickly spread into the daily lives of ordinary citizens.

The Flow of Money Grinds to a Halt ― The Economic Shock of the 1962 Currency Reform

Merchants found it increasingly difficult to secure the working capital needed to restock their goods, while consumers also cut back on spending.

When businesses faced cash shortages, they could struggle not only to pay for raw materials and settle accounts with suppliers but also to pay their workers’ wages.

The shortage of cash posed an especially immediate problem for small merchants and the self-employed, whose daily sales often provided the working capital needed to operate the following day.

Lee Byung-chul also recalled that financial conditions deteriorated and industrial activity contracted sharply during this period (Lee, 1986).

Ultimately, the currency reform did not merely freeze money supposedly hidden away outside the banking system. It also froze money that had been circulating normally through markets, factories, and households.

In attempting to secure funds for economic development, the government instead produced the unintended effect of simultaneously constraining production, distribution, and consumption.

The sudden currency exchange and restrictions on access to bank deposits also heightened public anxiety about the government and the financial system.

People’s confidence that they would be able to access and use their own money whenever they needed it had been shaken.

This economic and social disruption was also an important reason why the government was compelled to ease the restrictions so quickly.

6. How Did the Currency Reform Affect the Ethnic Chinese Economy in South Korea?

One important group to consider when examining the 1962 currency reform is South Korea’s ethnic Chinese community and its capital.

As the government sought to secure resources for economic development, it also paid attention to capital held by ethnic Chinese residents who were believed to possess substantial assets. Research on the ethnic Chinese community in South Korea argues that, in the early 1960s, the Park Chung-hee government “directly pressured ethnic Chinese residents with substantial assets” in its efforts to secure resources for economic development, and that the 1962 currency reform dealt a particularly severe blow to ethnic Chinese residents who held relatively large amounts of cash (Park, 2003).

Searching for Hidden Money ― The Military Government’s Focus on Ethnic Chinese Capital

However, the actual outcome differed from what the government had anticipated.

Not all of the wealth held by affluent individuals and merchants existed in the form of cash. Immediately after the currency reform was announced, there were also signs that people were attempting to convert their cash into goods. Contemporary accounts describe people buying as much fabric as they could afford at textile shops and purchasing food and other commodities (Kyunghyang Shinmun, 2010).

Ethnic Chinese merchants likewise held their wealth in various forms, including not only cash but also gold, foreign currency—particularly U.S. dollars—and merchandise. As a result, a currency exchange alone had clear limitations in identifying or capturing the full extent of their assets.

Real Assets of Ethnic Chinese Merchants That Were Difficult to Capture Through the Currency Reform

However, the fact that ethnic Chinese merchants held assets other than cash did not mean that they escaped the impact of the currency reform.

At the time, ethnic Chinese communities were engaged in trade, commerce, distribution, and the restaurant business in cities such as Seoul and Incheon. Maintaining these commercial activities required a continuous flow of cash and liquid funds to purchase goods and settle business transactions.

The sudden currency exchange and freezing of funds placed considerable pressure on these financial flows. Research on the ethnic Chinese community in South Korea has concluded that “the 1962 currency reform dealt a major blow to ethnic Chinese residents who held large amounts of cash.” The same research also explains that the reform produced broader adverse effects by disrupting distribution networks and reducing industrial operating rates and production (Park, 2003).

The Flow of Money Grinds to a Halt ― The Impact of the Currency Reform on Ethnic Chinese Commercial Districts

Although the government failed to secure the amount of hoarded funds it had expected, the currency reform nevertheless dealt a substantial blow to the liquidity and commercial activities of ethnic Chinese merchants. Combined with other institutional restrictions, including limitations on foreign land acquisition and ownership and regulations affecting the restaurant industry, these measures can be seen as having adversely affected the long-term settlement and economic activities of the ethnic Chinese community in South Korea (Park, 2003).

7. Land Ownership Restrictions Had a More Lasting Impact on the Ethnic Chinese Community

In 1961, the military government enacted the Foreigners’ Land Act.

The law did not impose a complete nationwide ban on land ownership by all foreign nationals.

However, it allowed the government to prohibit or restrict foreigners from acquiring rights to land in designated areas, and foreign land acquisition subsequently became subject to significant restrictions (Korean Law Information Center, 1961; Lee, 2024).

Restrictions on Foreign Land Acquisition and the Economic Constraints Facing Ethnic Chinese Residents in South Korea

Because most ethnic Chinese residents in South Korea were not South Korean citizens, they were directly affected by these institutional restrictions.

Land is more than simply a place to live.

It provides an important economic foundation for building shops and factories, securing warehouse space, obtaining financing by using real estate as collateral, and accumulating wealth.

Restrictions on land acquisition therefore made it more difficult for ethnic Chinese merchants to reinvest profits from commerce into real estate and businesses and, in turn, to expand the scale of their enterprises.

If the currency reform and financial controls made it more difficult to manage cash assets, land policies effectively restricted an important avenue through which the ethnic Chinese community could accumulate wealth over the long term.

8. Constraints on Both Cash and Real Estate

For these reasons, the economic environment facing the ethnic Chinese community in South Korea became unfavorable in several respects from the 1960s onward.

The currency reform disrupted funds held within the ethnic Chinese community, while restrictions on the acquisition and ownership of real estate and farmland created additional obstacles to long-term asset accumulation.

In particular, during the negotiations leading to the 1965 Treaty of Amity between the Republic of Korea and the Republic of China (Taiwan), the ethnic Chinese community in South Korea, through the Embassy of the Republic of China, called for the removal of various forms of institutional discrimination concerning residency and the acquisition of real estate and farmland.

The 1965 Republic of Korea–Republic of China Treaty of Amity and the Demands of the Ethnic Chinese Community

However, the South Korean government was wary that accepting these demands could preserve the existing economic rights of ethnic Chinese residents and create conditions that might facilitate the further development of the ethnic Chinese economy.

Ultimately, the demands of the Republic of China were not fully accepted, and ethnic Chinese residents in South Korea were guaranteed only the same general level of treatment accorded to other foreign nationals (Lee, 2024).

The contraction of the ethnic Chinese economy in South Korea, therefore, cannot be explained simply as the result of market competition.

It must also be understood within the broader institutional environment shaped by government policies toward foreign residents, real estate restrictions, and South Korea’s industrialization policies.

9. Why Did South Korea Not Develop Large Ethnic Chinese Business Groups Like Those in Southeast Asia?

At this point, South Korea presents an interesting contrast with several Southeast Asian countries.

In countries such as Singapore, Malaysia, Thailand, and Indonesia, ethnic Chinese merchants and entrepreneurs developed substantial economic influence in sectors including trade, distribution, finance, and manufacturing.

Ethnic Chinese Communities That Built a Strong Economic Base in Southeast Asia

In contrast, South Korea saw very few cases in which ethnic Chinese businesses developed into large-scale industrial enterprises or conglomerates.

This difference cannot be explained by the 1962 currency reform alone.

A combination of factors—including the Korean War and the Cold War order, nationality issues, restrictions on foreign land acquisition, various constraints on economic activity, and state-led industrialization policies centered on South Korean-owned firms—shaped the economic position of the ethnic Chinese community in South Korea (Lee, 2024).

In particular, during South Korea’s industrialization, the government concentrated bank loans, foreign credit, and various forms of policy support on domestic firms. Under these circumstances, it was difficult for ethnic Chinese businesses to gain access to the core of the state-led growth system.

As opportunities for economic activity became more restricted, some ethnic Chinese residents migrated onward to places such as Taiwan and the United States. Those who remained in South Korea tended to become concentrated in a relatively limited range of businesses, particularly the restaurant industry.

Those Who Left and Those Who Stayed to Continue Their Businesses ― Changes in South Korea’s Ethnic Chinese Community

10. Why Did Ethnic Chinese Communities in South Korea Become So Closely Associated with Chinese Restaurants?

The strong association between ethnic Chinese communities and Chinese restaurants in South Korea today is also closely related to these historical changes.

Ethnic Chinese residents in Korea were not originally concentrated solely in the restaurant business.

In earlier periods, they participated in a wide range of commercial activities, including trade, textiles, and distribution.

However, as various restrictions on economic activity and changes in the industrial structure narrowed the range of opportunities available to them, Chinese restaurants became one of the principal sources of livelihood for the ethnic Chinese community.

Government food policies in the 1960s and 1970s, however, had mixed effects on Chinese restaurants operated by ethnic Chinese residents.

In response to rice shortages, the government promoted the consumption of mixed grains and flour-based foods and introduced rice-free days to reduce rice consumption. These policies could actually benefit Chinese restaurants that primarily served wheat-based noodle dishes such as jjajangmyeon and jjamppong, as consumers were encouraged to substitute noodles and other flour-based foods for rice.

Food Policies of the 1960s–1970s and Ethnic Chinese Restaurants in South Korea

On the other hand, government controls on restaurant prices, various business regulations, and tax burdens constrained the profitability and managerial autonomy of Chinese restaurants. It is therefore more appropriate to view government policies of the period as having mixed effects on the ethnic Chinese restaurant industry: while some policies encouraged the consumption of noodles and other flour-based foods, others imposed restrictions on restaurant operations.

Interestingly, the number of ethnic Chinese restaurants increased from approximately 2,000 in the early 1960s to around 3,000 by the end of the decade.

It would therefore be inaccurate to suggest that the ethnic Chinese restaurant economy immediately collapsed.

A more substantial decline emerged during the 1970s. By 1977, the number of ethnic Chinese restaurants had fallen to approximately 1,950. Research attributes this decline to a combination of factors, including heavy taxation, various administrative regulations, institutional restrictions such as the Foreigners’ Land Act, a declining ethnic Chinese population, labor shortages, and increasing competition from Chinese restaurants operated by Koreans (Lee, 2023).

The contraction of the ethnic Chinese economy in South Korea, therefore, is better understood not as the sudden consequence of a single event, but as a long-term process shaped by the cumulative effects of multiple government policies and socioeconomic changes throughout the 1960s and 1970s.

11. The Failed Currency Reform Changed the Direction of South Korea’s Economic Policy

The 1962 currency reform was one of the major policy missteps during the early years of the Park Chung-hee military government.

The government believed that substantial amounts of money were hidden somewhere within South Korean society and expected that bringing these funds into the formal financial system would provide resources for economic development.

Reality, however, proved different.

The fundamental problem facing the South Korean economy at the time was not simply that money was being hidden away outside the banking system. Rather, the country suffered from an absolute shortage of domestic capital needed to finance economic development.

Moreover, when the government forcibly froze funds, the consequences extended beyond businesses. The policy also constrained everyday economic activity across markets and among merchants, workers, and ordinary households.

The 1962 Currency Reform: An Attempt to Find Hidden Money That Ended Up Choking the Flow of Money Through the Economy

Ultimately, the government was forced to confront the reality that it could not secure the capital needed for economic development simply by compelling people to bring hidden funds into the formal financial system (Bank of Korea, n.d.; Ryu, 2020).

South Korea’s subsequent economic development increasingly relied on foreign aid and loans, the expansion of domestic savings, and the accumulation of foreign exchange through exports.

As the government concentrated financial resources and foreign capital in selected industries and domestic firms, South Korea’s distinctive system of state-led industrialization began to take shape.

Conclusion ― What Did the 1962 Currency Reform Leave Behind?

The 1962 currency reform was a failed policy in the sense that it did not secure the massive amount of industrial capital the government had expected.

Instead, the sudden freezing of funds disrupted the flow of money available to businesses and merchants, while its effects also reached workers, the self-employed, and ordinary households.

The ethnic Chinese community was not immune to these disruptions.

However, it would be misleading to attribute the long-term contraction of the ethnic Chinese economy in South Korea to the currency reform alone.

Alongside the currency reform, a combination of institutional factors—including restrictions on the acquisition and ownership of real estate and farmland, residency issues, and various administrative regulations—operated over an extended period (Lee, 2023, 2024).

Therefore, when explaining why South Korea did not develop large ethnic Chinese business groups comparable to those found in parts of Southeast Asia, the 1962 currency reform can be regarded as one important event, but not as the sole cause.

The failure of the currency reform also provided an important lesson for the Park Chung-hee government.

Industrialization could not be financed simply by forcing supposedly hidden domestic funds into the formal financial system.

South Korea ultimately moved toward a development strategy that mobilized capital from abroad, earned foreign exchange through exports, and directed these resources toward domestic firms and strategic industries.

From the Failure of the Currency Reform to Export-Led Industrialization

The won, the currency unit used in South Korea today, was established through the 1962 currency reform.

Yet behind this change lies a far more complex history than a simple change in the unit of currency.

The reform represented a major episode of trial and error in South Korea’s economic development during the 1960s, raising fundamental questions about who would lead the country’s industrialization, where the capital needed for development would come from, and how far the state should intervene in private capital and economic activity.

References

Korean Law Information Center. (1961). Foreigners’ Land Act (Act No. 718, enacted September 18, 1961).

Ryu, S. Y. (2020). Park Chung-hee’s 1962 currency reform and Korean nationalism. Journal of Contemporary Politics, 13(3), 119–153. https://doi.org/10.52594/jcp.2020.12.13.3.119

Park, H. O. (2003). The social status and identity of ethnic Chinese in Korea. Incheon Development Institute.

Yonhap News Agency. (2009a, December 2). Ethnic Chinese in Korea (1): The first migration during the Imo Incident.

Yonhap News Agency. (2009b, December 2). Ethnic Chinese in Korea (Final): Interview with Wu Xuebin, auditor of the Chinese Residents Association.

Lee, B. C. (1986). Hoam autobiography. JoongAng Ilbo Publishing.

Lee, J. H. (2023). A study on the number, regional distribution, and management conditions of ethnic Chinese restaurants in Korea: Focusing on the period from liberation to the early 2000s. Economic History, 47(3), 291–324.

Lee, J. H. (2024). Institutional discrimination against ethnic Chinese by the South Korean government and the perceptions and responses of the ethnic Chinese community: An analysis of Chinese-language magazines published by the ethnic Chinese community. Journal of Korean Modern and Contemporary History, 108, 153–185. https://doi.org/10.29004/jkmch.2024.03.108.153

Bank of Korea. (n.d.). 1962–1970: Chronology of Korean currency. Bank of Korea.