In December last year, Korea's foreign exchange reserves fell by $2.6 billion. As the won-dollar exchange rate approached 1,500 won to the U.S. dollar, authorities moved to defend the currency, which analysts said affected the decline. It was the first decrease in seven months.
According to the Bank of Korea (BOK) on Jan. 6, Korea's foreign exchange reserves stood at $428.05 billion (about 619 trillion won) at the end of December last year, down $2.6 billion from a month earlier.
Earlier, foreign exchange reserves decreased by $770 million at the end of May last year ($404.6 billion), falling to the lowest level in about five years. They then increased for six straight months to $430.66 billion at the end of November last year. However, they declined again last month.
The Bank of Korea (BOK) said, "Increases in foreign currency deposits at financial institutions due to quarter-end effects and increases in the U.S. dollar-converted value of foreign-currency assets in other currencies were upward factors, while measures to ease volatility in the foreign exchange market acted as downward factors."
Typically, at quarter's end, foreign exchange reserves rise because financial institutions increase foreign currency deposits to meet regulatory ratios. However, as the won-dollar rate surged intraday to 1,484.9 won (Dec. 24 high) last month, authorities moved to defend the currency, and reserves instead declined, the explanation said.
By asset type, securities such as Government Bonds and corporate bonds ($371.12 billion) fell by $8.22 billion. Deposits ($31.87 billion) and special drawing rights ($15.89 billion) increased by $5.44 billion and $150 million, respectively. Gold is recorded at purchase price rather than market value, so it remained unchanged from the previous month at $4.79 billion.
As of the end of November last year ($430.7 billion), Korea's foreign exchange reserves ranked ninth in the world. China had the most at $3.3464 trillion, followed by Japan ($1.3594 trillion), Switzerland ($1.0588 trillion), Russia ($734.6 billion), India ($687.9 billion), Taiwan ($599.8 billion), Germany ($552.3 billion), and Saudi Arabia ($463.7 billion) in second to eighth.