Foreign Exchange Reserves Drained to Defend the Won, Barely Replenished by Deposits

[Financial News] Despite stabilization measures to cool the won-dollar exchange rate, which has effectively settled at the 1,500-won level, South Korea's foreign exchange reserves turned upward as foreign currency deposits at financial institutions increased. The country's reserve ranking also slipped one more place to 13th.
According to the Bank of Korea on the 3rd, South Korea's foreign exchange reserves stood at $427.36 billion at the end of June, up $370 million from the end of the previous month.
The reserves had previously fallen to $404.6 billion at the end of May last year, the lowest level in about five years, before rising for six straight months through November. They then turned downward in December. This year, the figures have fluctuated sharply, with January at minus $2.15 billion, February at plus $1.72 billion, March at minus $3.97 billion, April at plus $4.22 billion, and May at minus $880 million.
A Bank of Korea official explained that reserves were again used up for market stabilization measures such as currency swaps with the National Pension Service (NPS), but the inflow of foreign currency deposits from financial institutions more than offset the decline.
By asset category, deposits rose by $920 million to $22.27 billion. In contrast, securities, which totaled $380.34 billion, fell by $330 million. Special Drawing Rights (SDR) and the IMF position, which refers to claims held by International Monetary Fund member countries through capital subscriptions and lending, also declined by $140 million and $90 million, respectively. Gold was unchanged at $4.79 billion.
This time, deposits helped cushion the decline, but if the won-dollar exchange rate continues to surge, foreign exchange reserves will inevitably keep being depleted. According to Seoul Money Brokerage Services Ltd., the won-dollar rate closed at 1,555.8 won on the 2nd. The closing rate has remained in the 1,500-won range for 33 consecutive trading days since May 15.
South Korea's foreign exchange reserves, which are used to compare rankings with other major economies, stood at 13th in the world at the end of June. The country fell from 9th place in January to 10th in February, then dropped to 12th in March and held that position for three months before being downgraded again this time.
China ranked first with $3.4422 trillion, followed by Japan with $1.3059 trillion, Switzerland with $1.0767 trillion, Russia with $747.4 billion, India with $686.3 billion, Taiwan with $605.1 billion, Germany with $590.7 billion, Saudi Arabia with $487.9 billion, Italy with $452.2 billion, Hong Kong with $445.9 billion, France with $441.6 billion, and Singapore with $430.1 billion.

[email protected] Kim Tae-il Reporter