Last month, Korea's foreign exchange reserves fell by $2.15 billion. They declined for a second straight month after December last year. The drop appears to reflect the authorities' move to defend the currency as the won surged sharply against the U.S. dollar.
According to the Bank of Korea (BOK) on Feb. 4, Korea's foreign exchange reserves stood at $425.91 billion as of the end of January, down $2.15 billion from the end of December last year ($428.05 billion).
Foreign exchange reserves fell to a five-year low of $404.6 billion at the end of May last year, then rose steadily from June. They turned lower in December last year as the exchange rate jumped, and fell for a second straight month in January as the won continued to rise.
The Bank of Korea (BOK) said, "Market stabilization measures, including a foreign exchange swap with the National Pension Service, were a factor in the decline in foreign exchange reserves." As the won-dollar rate surged, the National Pension Service tapped dollars through a swap contract with the Bank of Korea (BOK), reducing the overall balance of foreign exchange reserves.
A foreign exchange swap refers to the National Pension Service raising dollars from foreign exchange reserves for overseas asset purchases and paying them back later in dollars. When the National Pension Service borrows dollars via a foreign exchange swap, foreign exchange reserves temporarily decrease until maturity.
Korea's foreign exchange reserves ranked ninth in the world at the end of December last year ($428.1 billion). China had the most at $3.3579 trillion, followed by Japan ($1.3698 trillion), Switzerland ($1.0751 trillion), Russia ($754.9 billion), India ($687.7 billion), Taiwan ($602.6 billion), Germany ($566.1 billion), and Saudi Arabia ($460.1 billion).