Last month, Korea's foreign exchange reserves increased by $1.72 billion, rising for the first time in three months. Despite market-stabilization measures by the foreign exchange authorities, new foreign-currency Foreign Exchange Equalization Fund bonds were issued and returns on foreign-currency assets grew, leading to an increase in holdings.
According to the Bank of Korea (BOK) on the 5th, as of the end of February, Korea's foreign exchange reserves stood at $427.62 billion, up $1.72 billion from the end of January ($425.91 billion).
Foreign exchange reserves fell to the lowest level in more than five years at the end of May last year ($404.6 billion) and then steadily increased from June. They turned lower in December last year as the exchange rate surged and also fell in January. However, with an increase last month, they rose for the first time in three months.
A Bank of Korea (BOK) official said, "Despite market-stabilization measures such as a foreign exchange swap with the National Pension Service and factors including a decline in the U.S. dollar conversion value of foreign-currency assets denominated in other currencies, holdings increased due to new issuance of foreign-currency Foreign Exchange Equalization Fund bonds and higher investment returns."
The government issued $3 billion in dollar-denominated Foreign Exchange Equalization Fund bonds last month. The issuance size was the largest on a single-issue basis since 2009 ($3 billion).
Foreign Exchange Equalization Fund bonds are bonds issued to raise funds for the "Foreign Exchange Equalization Fund," which the government establishes to stabilize exchange rates. They are issued in two forms—won-denominated and foreign-currency-denominated—and when issued in foreign currency, investors must pay foreign currency to purchase the bonds. This process has the effect of increasing foreign exchange reserves.
Korea's foreign exchange reserves ranked 10th in the world as of the end of January. China had the most at $3.3991 trillion, followed by Japan ($1.3948 trillion), Switzerland ($1.1095 trillion), Russia ($833.6 billion), India ($711.5 billion), Germany ($652.3 billion), Taiwan ($604.5 billion), Saudi Arabia ($475.8 billion), and Hong Kong ($435.6 billion).