South Korea’s foreign exchange reserves have seen a noteworthy rebound in March, marking an end to a two-month decline despite the challenges posed by the robust US dollar, as per the latest announcement from the central bank on Wednesday.
According to data released by the Bank of Korea, the country’s foreign reserves reached $419.25 billion by late March, representing a notable increase of $3.51 billion compared to the previous month. This uptick comes after two consecutive months of decline, with decreases of $4.4 billion in January and $20 million in February.
The recent strength of the US dollar had previously led to a decrease in the converted value of assets held in other currencies, consequently impacting South Korea’s overall international reserve. However, March saw a reversal in this trend, as gains from deposits and investments managed to offset the losses.
Explaining the dynamics behind the rebound, the central bank stated, “Though the strong US dollar brought down the converted value of foreign assets held by the BOK, gains from investment and deposits offset the decrease and raised the amount held by the overall reserve.”
In March, foreign securities, which constitute the largest portion of the reserve, amounted to $364.89 billion, marking an increase of $4.63 billion from the previous month and accounting for 87 percent of the total. These securities primarily include US Treasurys, government agencies, and corporate bonds.
Deposits held by the central bank also saw a significant increase, reaching $30.5 billion in March, up $8.73 billion from the previous month, and accounting for 8.7 percent of the total reserve.
The remainder of South Korea’s foreign reserve comprises special drawing rights amounting to $14.7 billion (3.5 percent), gold valued at $4.8 billion (1.1 percent), and the country’s claims related to the International Monetary Fund at $4.3 billion (1 percent).
As of late February, South Korea ranked as the world’s ninth-largest holder of foreign reserves, with its reserve amounting to $415.7 billion. Notably, China retained its position as the country with the largest foreign reserve globally, followed by Japan, Switzerland, India, Russia, Taiwan, Saudi Arabia, and Hong Kong. South Korea was trailed by Singapore at $357.3 billion.
The continued strength of the US dollar this year has been underpinned by robust economic data, suggesting the resilience of the US economy. This trend has led to speculation that the US Federal Reserve is unlikely to cut key interest rates soon, thereby diminishing the preference for higher-risk assets, including the Korean won.
In March, the US dollar index, which measures the dollar’s value against major peers such as the euro, pound, and yen, rose by 0.5 percent, indicating relative strengthening of the US currency. Meanwhile, the euro index fell by 0.5 percent, while the pound index and yen index decreased by 0.3 percent and 0.5 percent, respectively, during the same period.
With the strong performance of the US dollar, the Korean won-US dollar exchange rate hit its highest level of the year on Tuesday, closing at 1,352.1 won against the greenback. During intraday trading, it even reached a peak of 1,355.9 won, breaking the record for the year.
As of 12:08 p.m. on Wednesday, the won-dollar exchange rate stood at 1,349.9 won, marking a strengthening of 2.2 won from the previous session’s close.
