April 19, 2024

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[THE INVESTOR] South Korea’s foreign exchange reserve decreased for two straight months, due to strengthened US dollar value, the central bank said on Dec. 5.

The nation‘s foreign exchange reserve for November stood at $371.99 billion, down $3.18 billion compared to October. It dropped by the largest margin in 16 months since July 2015, when the reserve slid by $3.9 billion.

“The value of the US dollar has sharply increased following US President-elect Donald Trump’s acceptance speech, through which he announced that his administration will increase fiscal spending,” said Kim Chung-hwa, a senior economist at the Bank of Korea.

“A possible interest rate hike by the US Federal Reserve later this month also attributed to the change,” Kim added.

The value of most foreign currencies dropped against the greenback in November, which affected Korea‘s reserves.

The Euro and Japanese Yen weakened 3 percent and 7 percent, respectively, against the US dollar, BOK data showed.

Breaking down Korea’s foreign exchange reserve by assets, marketable securities composed of national debt, asset-backed security and others dropped $5.41 billion, totaling $336.8 billion, between October and November, according to BOK data.

The IMF reserve tranche position, which refers to funds a member country can access at its discretion, stood at $1.74 billion, down $30 million.

Meanwhile, some assets increased.

Total deposits rose $1.88 billion to $25.66 billion. Special Drawing Right, which is an international reserve asset created by the IMF, reached $2.9 billion, up $370 million.

The value of gold remained the same at $4.79 billion.

“It is important for all countries, in particular Korea, to maintain a certain level of foreign exchange reserve. It acts as an emergency fund when conditions in and out of the country are unstable, for example, when foreigners pull out a significant amount of capital out of Korea,” Kim explained.

As a result of a smaller reserve, Korea went down a spot to No. 8 on IMF’s ranking of countries by foreign exchange reserve as of the end of October.

Hong Kong climbed up three spots to No. 7 on reserves that flagged $383.1 billion, up $20.6 billion, IMF data showed.

Among the top 10 economies, Hong Kong was the only one that saw an increase in foreign exchange reserve.

China retained the top spot with $3.21 trillion, followed by Japan and Switzerland with $1.24 trillion and $686.5 billion, respectively. 

By Kim Bo-gyung/The Korea Herald (lisakim425@heraldcorp.com)