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FX reserves

S. Korea's FX reserves rise for 7th straight month to record-high $426.5 bn

Nov 04, 2020 (Gmt+09:00)

South Korea's foreign exchange reserves rose for a seventh straight month to a fresh record high in October due to gains in non-dollar assets and increased investment returns.

According to Bank of Korea data on Nov. 4, the country's FX reserves stood at $426.5 billion at the end of October, up nearly $6 billion from the previous month. The monthly gain marks the largest since a $6.5 billion rise in January 2018.

KEB Hana Bank employee examines dollars for counterfeit bills


The BOK attributed the gains to higher investment returns, a rise in bank deposits in foreign currencies and the increased dollar-conversion value of non-dollar assets following a weaker US currency.

As for asset types, securities including government bonds and corporate bonds swelled to $383.7 billion. Bank deposits rose 7.2% to $30.5 billion.

Market watchers say that the increased FX reserves alongside the weakened dollar will help stabilize Korea's foreign exchange market, raising doubt over the effectiveness of foreign exchange stabilization fund bonds and Korea-US currency swaps.

FX stabilization fund bonds are generally issued to prevent the further weakening of the Korea won. Some critics say that the government should carefully review the need to issue FX stabilization bonds, given that the dollar-won exchange rate is on a downward trend. There is also market chatter on the efficiency of Korea-US currency swaps. Some have become skeptical about the need for the government to renew FX swaps with the US.

Korea's FX authorities have reportedly stepped in to the local currency market in recent weeks to smooth FX volatilities amid the won's steady gains versus the dollar.

Korea was the world's ninth-largest holder of FX reserves at the end of September.

Write to Ik-hwan Kim at lovepen@hankyung.com

Danbee Lee edited this article.

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