South Korea’s foreign exchange reserves shrank to a five-year low at the end of last year after the country’s foreign exchange authorities sold the US currency in the foreign exchange market to prop up the weak Korean won throughout the year.
According to the Bank of Korea on Monday, Korea’s foreign exchange reserves stood at $415.6 billion as of the end of December 2024, a $4.55 billion fall from a year ago.
The country’s reserve assets diminished to the lowest amount since 2019 after contracting for three straight years since 2021.
The decrease is largely due to the sluggish Korean won against the US dollar throughout last year, triggering the local foreign exchange authorities’ frequent interventions in the foreign exchange market to ease market volatility.
The Korean won closed the year 2024 at 1,472.50 per dollar versus 1,300.40 on January 2, 2024.
Even before the forex market tantrum triggered by Korean President Yoon Suk Yeol’s ill-fated bid to impose martial law in early December, the Korean won already plunged by more than 100 to 1,402.90 per dollar from the beginning of the year.
The Korean authorities were suspected of selling off the greenback to ease volatility in the country’s foreign exchange market throughout 2024.
The Korean foreign exchange authorities net sold $7.42 billion worth of US dollars in the first three quarters of last year.
THE WORLD’S 9TH-LARGEST RESERVE ASSETS
In December alone, Korea’s reserve assets, however, increased by $210 million compared to the end of November, refuting market speculation for the authorities’ hefty dollar-selling intervention to shore up the Korean unit in the aftermath of the martial law havoc.
To prevent the won’s crash, the Korean foreign exchange authorities issued several intervention warnings last month.
The recent data, however, suggested that the authorities intervened the country’s foreign exchange market mostly verbally with limited dollar sales last month.
The reserve assets also added by an increase in US dollar deposits by local banks that decided to manage their BIS capital adequacy ratio at healthy levels at the end of the year.
The capital adequacy ratio is a key measure of a bank’s capital to its risk-weighted assets.
Deposits grew $6.09 billion to $25.22 billion as of the end of December from a month ago.
As of the end of November, Korea’s foreign exchange reserves remained the world’s ninth-largest.
The US dollar-won exchange rate fell 8.60 to 1,454.30 from the previous session on Tuesday morning.
By Jin-gyu Kang
josep@hankyung.com
Sookyung Seo edited this article.
