South Korea’s foreign exchange reserves have dropped to their lowest level in five years, according to recent data released by the Bank of Korea (BOK). The country’s reserves stood at $404.67 billion at the end of April, a decrease of nearly $5 billion from March’s $409.66 billion. The reserves now reflect the lowest levels since April 2020.
The BOK attributed this drop primarily to foreign exchange swap transactions with the National Pension Service (NPS), South Korea’s public pension fund manager. In December, the NPS was allowed to borrow up to $65 billion from the BOK’s reserves to stabilize the market amidst increased volatility. This borrowing arrangement will last until the end of 2025, but the central bank assured that the decrease in reserves during the swap periods is temporary as the funds will be restored once the transactions mature.
Additionally, the BOK pointed to a decrease in foreign currency deposits held by financial institutions as another factor contributing to the drop. Despite the reduction, South Korea’s foreign exchange holdings still rank as the 10th largest globally as of March.
This decline comes amid rising global geopolitical tensions, trade uncertainties, and domestic economic challenges, which have all placed pressure on South Korea’s economy. The country’s currency, the South Korean won, weakened to its lowest point in 16 years against the U.S. dollar in early April.
To address the situation, South Korea’s acting economy and finance minister Kim Beom-seok stated that the government will continue to closely monitor the financial markets and take measures to stabilize the economy. The government is also preparing to implement 70% of a recently approved budget aimed at stimulating domestic demand and supporting export companies.
The BOK’s Governor, Rhee Chang-yong, acknowledged that continued volatility in the foreign exchange market is expected due to ongoing global economic uncertainties and domestic political instability.
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