S.Korea’s forex reserves dwindle to lowest point in more than 3 years

South Korea’s foreign exchange reserves dropped in October for the third straight month to their lowest point since June 2020, as local authorities heavily sold off dollars to ease market volatility and slow the won’s retreat.

The country’s forex reserves dwindled to $412.87 billion as of the end of October, a $1.24 billion decrease from a month before, according to the Bank of Korea (BOK) on Friday.

The end-October figure marks the lowest level in three years and four months since the reserves stood at $410.75 billion in June 2020.

The reserves have diminished for the third straight month since hitting $421.8 billion in July this year.

"Measures implemented to ease foreign exchange market volatility and the decreased conversion value of other foreign currencies in dollar terms were the main reasons behind the drop in the reserves,” said a Bank of Korea official.

In early October, the won softened to 1,360 per dollar, near its 11-month low.

This year, the dollar/won rate fluctuated at its wildest level since 2010 as of the first week of October.

The local authorities also drew on forex reserves to swap some dollars with the won held by South Korea’s National Pension Service in line with their currency swap agreement signed last year, the BOK added.

In October, the dollar also advanced against other foreign currencies such as the Chinese yuan and the Australian dollar, excluded from a basket of major currencies such as the euro and Japanese yen, used as a yardstick for the US Dollar Index.

But the US Dollar Index slipped 0.2% last month.

BY ASSET

In the portfolio of the forex reserves, the balance of treasury and corporate bonds shrank by $5.61 billion on-month to $369.98 billion as of end-October.

The value of the BOK’s special drawing rights (SDR) diminished by $30 million to $14.77 billion during the period.

An SDR is a supplementary forex reserve asset, created and maintained by the International Monetary Fund. Its holder can tap into it when needed.

The depletion of South Korea’s forex reserves raised concerns the local authorities might run low on foreign currencies to be used to buffer foreign exchange market volatility.

It sold a net $5.97 billion in dollars in the local foreign exchange market in the second quarter of this year.

Over the past two years, South Korea has spent more than $67 billion to stem the won's rapid drop, central bank data showed.

South Korea is the world’s ninth-largest country in terms of forex reserves as of the end of September.

Write to Jin-Gyu Kang at josep@hankyung.com
 

Yeonhee Kim edited this article.