Foreign exchange reserves decreased by $2.7 billion while defending FX rates

Following the recent sharp drop in the value of the won, the foreign exchange authorities took measures to defend the exchange rate, reducing the nation’s foreign-exchange reserves by nearly 3 billion U.S. dollars in one month.

According to the Bank of Korea (BOK) on Thursday, Forex reserves stood at 414.1 billion dollars last month, down USD2.76 billion from the end of September (USD416.77 billion). Forex reserves decreased for four consecutive months since March of this year and rebounded in July but declined again for three consecutive months since August.

The main culprit behind the decline in Forex reserves is that authorities have recently sold their dollar reserves in the market to control the rate of appreciation of the won-dollar exchange rate. “Although the amount of foreign currency assets converted into U.S. dollars in other currencies such as euros and yen has increased, Forex reserves have decreased due to the effect of measures to mitigate volatility in the foreign exchange market,” the BOK said. The central bank, however, added that the scale of “market intervention” was not as large as in September as the foreign exchange market recovered relatively in October.

Although foreign exchange reserves continue to downtrend, as of the end of September, Korea’s Forex reserves are still ranked ninth in the world. China holds the most with USD3.29 trillion, followed by Japan (1.24 trillion dollars) and Switzerland (892.1 billion dollars). An official from the BOK said, "In the future if the won-dollar exchange rate is excessively deviating from the fundamentals of the Korean economy and movements of major currencies, we plan to take proactive market stabilization measures causing concentration to be exacerbated."


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