Despite concerns over depletion due to soaring exchange rates, foreign exchange reserves increased in December last year for the first time in three months. This was attributed to the rise in the foreign currency deposits of financial institutions and the revenue generated from operations, despite the Bank of Korea's volatility mitigation measures.
According to the 'December 2024 foreign exchange reserves' report released by the Bank of Korea on the 6th, the foreign exchange reserves as of the end of last month were $415.6 billion, an increase of $210 million from the end of the previous month ($415.39 billion). This marked an increase after a three-month decline since October last year (-$4.28 billion).
The won-dollar exchange rate surged to 1,486.2 won amid the enforcement of martial law and the impeachment of President Yoon Suk Yeol and Prime Minister Han Duck-soo last month. This led some to predict that the foreign exchange reserves might have sharply declined due to market intervention by the foreign exchange authorities. However, as the foreign exchange reserves actually increased by the end of December, these predictions were off the mark.
The Bank of Korea assessed that the increase in revenue from U.S. bonds and equities, along with the rise in foreign currency deposits, played a larger role due to the favorable U.S. stock market. The Bank noted, "Despite the decrease in the U.S. dollar equivalent of foreign assets in other currencies and volatility mitigation measures in the foreign exchange market, financial institutions' foreign currency deposits increased and revenue was generated due to the quarter-end effect."
The U.S. dollar index (DXY), which shows the value of the dollar against the currencies of six major countries, rose 2.0%, from 106.05 at the end of November last year to 108.13 at the end of last month. During the same period, the euro fell by 1.5%, the pound by 1.2%, and the yen and Australian dollar fell by 3.5% and 4.4%, respectively. The won-dollar exchange rate surged from 1,394.7 won to 1,472.5 won.
U.S. government bonds, agency bonds, and corporate bonds, which account for the majority of foreign exchange reserves, were recorded at $366.67 billion, down $5.72 billion from the previous month ($372.39 billion).
Deposits increased by $6.09 billion to $25.22 billion, while special drawing rights decreased by $18 million to $14.71 billion. The International Monetary Fund (IMF) position decreased from $4.19 billion to $4.2 billion. Gold remained unchanged at $4.79 billion from the previous month.
South Korea's foreign exchange reserves, which can be compared with major countries, ranked 9th at $415.4 billion as of the end of November last year. China topped the list with $3.2659 trillion, followed by Japan at $1.239 trillion, Switzerland at $925.1 billion, India at $659.4 billion, Russia at $616.5 billion, Taiwan at $578 billion, Saudi Arabia at $449.5 billion, and Hong Kong at $425.1 billion.