"Impact of FX Market Stabilization Measures" Foreign Exchange Reserves Decline for Second Consecutive Month

January FX Reserves at 42.591 Billion Dollars
Impact of Market Stabilization Measures Such as Currency Swap with the National Pension Service

Korea's foreign exchange reserves declined for the second consecutive month, falling below the 426 billion dollar mark for the first time since September last year. Market stabilization measures, including a currency swap with the National Pension Service implemented in response to the high exchange rate, were the main factors behind the decrease in foreign exchange reserves.

According to the Bank of Korea on the 4th, as of the end of January this year, Korea's foreign exchange reserves stood at 425.91 billion dollars, down about 2.15 billion dollars from 428.05 billion dollars at the end of the previous month.

The Bank of Korea stated that foreign exchange market stabilization measures, such as the currency swap with the National Pension Service, were the primary cause of the decline in foreign exchange reserves. The won-dollar exchange rate, which had exceeded 1,480 won in December last year, eased to around 1,420 won by year-end thanks to strong verbal intervention by the foreign exchange authorities and measures to reduce FX market volatility. After the New Year, the exchange rate steadily climbed to the upper 1,470 won range, then fell again in line with the stronger yen. It was during this process that the National Pension Service foreign exchange swap was carried out.

Another factor appears to be financial institutions withdrawing their foreign currency deposits placed with the central bank to meet the Bank for International Settlements (BIS) regulatory ratios at year-end. As of the end of last month, deposits within the foreign exchange reserves amounted to 23.32 billion dollars, down 8.55 billion dollars from the end of the previous month.

The value of securities, which account for 88.6% of the Bank of Korea's foreign exchange reserves, increased by 6.39 billion dollars compared with the end of December last year. An official from the foreign exchange authorities explained, "At the beginning of the year, we go through a strategic process of asset allocation, and the increase was temporary during this process."

Meanwhile, as of the end of December, Korea's foreign exchange reserves remained the ninth largest in the world.