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'Defense of 1,470 Won' Leads to $4.6 Billion 'Evaporation' of Foreign Reserves in a Month [Hankyung Forex Market Watch]

Source
Korea Economic Daily
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  • It was reported that Korea's foreign reserves decreased by $4.6 billion, marking the largest decrease in nine months.
  • The decrease in foreign reserves was attributed to factors such as exchange rate defense and the expansion of foreign exchange swaps.
  • Korea's foreign reserves ranking remains at 9th in the world.
STAT AI Notice
  • The article was summarized using an artificial intelligence-based language model.
  • Due to the nature of the technology, key content in the text may be excluded or different from the facts.

Foreign reserves have decreased by about $4.6 billion over the past month. The year-end effect has disappeared, and intervention by the authorities to defend the exchange rate has led to the largest decrease in nine months.

According to the foreign reserves statistics released by the Bank of Korea on the 5th, Korea's foreign reserves at the end of January were recorded at $411.01 billion. This is a decrease of $4.59 billion compared to the end of December last year. This decrease is the largest since April last year, when reserves decreased by $5.99 billion in a month. The total foreign reserves are the smallest in four years and seven months since $410.7 billion in June 2020.

A Bank of Korea official explained, "The decrease in foreign currency deposits by financial institutions, the expansion of foreign exchange swaps with the National Pension Service, and measures to ease foreign exchange market volatility have led to a reduction in foreign reserves." Regarding foreign exchange swaps, it was added, "During the swap transaction period, foreign reserves decrease by the transaction amount, but since the funds are fully restored at maturity, it is a temporary decrease factor."

Last month, the exchange rate once rose above 1,470 won, indicating that the Bank of Korea and other foreign exchange authorities intervened in the market to some extent. After President Yoon Suk-yeol's emergency martial law, the exchange rate has been moving in the mid to high 1,400 won range. The average exchange rate per dollar rose from 1,436.78 won in December to 1,455.50 won last month.

Breaking down the foreign reserves by asset, securities such as government bonds and corporate bonds recorded the largest decrease, falling by $4.65 billion to $362.02 billion. Deposits increased by $700 million to $25.29 billion, and Special Drawing Rights (SDR) with the International Monetary Fund (IMF) remained the same at $14.72 billion. Gold, marked at purchase price, was $4.79 billion. The Bank of Korea has maintained a total of 104.4 tons of gold since purchasing an additional 20 tons in 2013.

As of the end of December last year, Korea's foreign reserves ranked 9th in the world at $415.6 billion. China had the most with $3.2024 trillion, followed by Japan ($1.2307 trillion), Switzerland ($909.4 billion), India ($635.7 billion), Russia ($609.1 billion), Taiwan ($576.7 billion), Saudi Arabia ($436.6 billion), and Hong Kong ($421.5 billion). Although the decrease in January was significant, the gap with 10th-ranked Germany ($377.9 billion) is large, so it is unlikely that the ranking has fallen.

Joseph Kang josep@hankyung.com

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