Foreign Exchange Reserves Decrease by $5.7 Billion... Fall Resumes Amid Strong Dollar

[Image source=Yonhap News]

South Korea's foreign exchange reserves decreased by 5.7 billion dollars in one month, falling to the lowest level this year.

The Bank of Korea announced on the 5th that as of the end of last month, South Korea's foreign exchange reserves stood at 420.98 billion dollars, down 5.7 billion dollars from the end of the previous month.

The foreign exchange reserves increased from 414.057 billion dollars in October last year to 429.96767 billion dollars in January this year, then slightly decreased in February, rose for two consecutive months in March and April, but turned downward again last month after three months. The size of the foreign exchange reserves last month was the lowest since November last year (416.1491 billion dollars).

The Bank of Korea explained that the decrease in foreign exchange reserves was due to "a reduction in the dollar conversion amount of other currency foreign assets, a decrease in foreign currency deposits of financial institutions, and measures to ease volatility in the foreign exchange market."

In fact, last month, concerns about tightening by the U.S. Federal Reserve (Fed) increased, causing the dollar index, which indicates the value of the dollar against six major currencies, to rise by 2.6%. Meanwhile, the euro fell 2.7% against the dollar, and the yen decreased by 4.2%. The pound and the Australian dollar also dropped by 0.7% and 1.7%, respectively.

Among the foreign exchange reserves, deposits decreased the most by 10 billion dollars. Their share within the foreign exchange reserves dropped from 6.5% to 4.2%. Securities, which make up the majority of the foreign exchange reserves, increased by 4.62 billion dollars in one month to 378.96 billion dollars. Their share within the foreign exchange reserves rose from 87.7% to 90%.

Last month, due to the U.S. debt ceiling negotiations and concerns about Fed tightening, the dollar's value rose and the won-dollar exchange rate volatility increased, leading to continued volatility easing measures by foreign exchange authorities. However, this month, with the conclusion of the U.S. debt ceiling negotiations and growing expectations for the Fed to hold policy rates steady, stability has been restored.

According to the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,305.7 won on the 2nd. This is the lowest level in about a month and a half since April 14 (1,298.9 won).

As of the end of April, South Korea's foreign exchange reserves rank 9th in the world.

China had the largest reserves, increasing by 20.9 billion dollars in one month to 3.2048 trillion dollars, followed by Japan (1.2654 trillion dollars), Switzerland (900.8 billion dollars), Russia (595.8 billion dollars), India (590.1 billion dollars), Taiwan (561.1 billion dollars), Saudi Arabia (429.8 billion dollars), and Hong Kong (427.4 billion dollars).