Foreign Exchange Reserves Rebound After Four Months Amid 'Weak Dollar'

The Bank of Korea's 'End of July Foreign Exchange Reserves'
Rise After Four Months Amid Dollar Weakness
Increase in Dollar-Converted Value of Other Currency Foreign Assets

South Korea's foreign exchange reserves rebounded after four months. This was due to expectations that the U.S. Federal Reserve (Fed) would cut interest rates in September, leading to a weaker dollar and an increase in the dollar value of foreign currency assets other than the dollar.

According to the "Foreign Exchange Reserves at the End of July 2024" announced by the Bank of Korea on the 5th, South Korea's foreign exchange reserves stood at 413.51 billion dollars at the end of last month, up 1.3 billion dollars from the previous month, showing an upward trend after four months.

The foreign exchange reserves had decreased for three consecutive months as the exchange rate surged around April and the foreign exchange authorities intervened in the market. However, expectations that the Fed would cut interest rates around September grew, and due to the weak dollar effect, the reserves turned to an increasing trend after four months.

Kim Young-woong, head of the foreign exchange accounting team at the Bank of Korea, explained, "Although foreign currency deposits of financial institutions decreased as the quarter-end effect disappeared, the issuance of new foreign exchange stabilization bonds (Oe-pyeong-chae), and the increase in the dollar value of foreign currency assets in other currencies due to the weak U.S. dollar led to an increase in foreign exchange reserves."

He added, "The U.S. dollar weakened because expectations grew from the end of July that the Fed would cut interest rates around September."

Breaking down the foreign exchange reserves by asset type, securities such as government bonds and corporate bonds amounted to 367.05 billion dollars, an increase of 3.07 billion dollars from the previous month. Special Drawing Rights (SDR) at the International Monetary Fund (IMF) were 14.95 billion dollars, up 300 million dollars, and the IMF position was 4.37 billion dollars, up 10 million dollars.

On the other hand, deposits were 22.35 billion dollars, down 2.08 billion dollars from the previous month. Gold remained unchanged at 4.79 billion dollars.

As of the end of June, South Korea's foreign exchange reserves ranked 9th in the world. Looking at the foreign exchange reserves of major countries, China ranked first with 3.2224 trillion dollars, followed by Japan (1.2315 trillion dollars), Switzerland (883.8 billion dollars), India (652 billion dollars), Russia (593.5 billion dollars), Taiwan (573.3 billion dollars), Saudi Arabia (467.7 billion dollars), and Hong Kong (416.3 billion dollars).