South Korea's Forex Reserves Hit a 4-Year, 9-Month Low

In a surprising turn of events, South Korea's foreign exchange reserves have fallen below the $410 billion mark for the first time in four years and nine months. As of February, the reserves stand at $409.21 billion, a decrease of $1.8 billion from the previous month. This decline is largely attributed to the expansion of foreign exchange swap agreements with the National Pension Service (NPS).

Understanding the Impact of NPS Agreements

The Bank of Korea (BOK) has pointed out that despite the weakening dollar increasing the U.S. dollar equivalent of other currencies, the reserves have dipped due to the expanded foreign exchange swap agreements with the NPS. This strategic move was in response to the surge in exchange rates following the declaration of a state of emergency, with the foreign exchange swap limit with the NPS being increased from $50 billion to $65 billion.

A Temporary Setback?

Hwang Moon-woo, head of the BOK’s foreign exchange accounting team, reassures that the decline in foreign exchange reserves is only temporary. The dollars lent to the NPS are expected to be repaid within six to twelve months, indicating a potential rebound in the near future.

Breaking Down the Reserves

When dissecting the foreign exchange reserves by asset type, it's evident that securities, including government and corporate bonds, have seen the largest drop, totaling $357.38 billion. On the other hand, deposits have increased to $28.01 billion, and Special Drawing Rights (SDRs) at the International Monetary Fund (IMF) have risen to $14.84 billion. Gold holdings remain steady at $4.79 billion, with the BOK maintaining its total gold reserves at 104.4 tons since 2013.

Global Standing

As of the end of January, South Korea ranks ninth globally in foreign exchange reserves, with China leading the pack at $3.21 trillion. This positioning highlights the significant role South Korea plays in the global economy, despite the recent dip in its reserves.