Korea loses $9.4 bn in FX reserves in June amid sharp weakening in KRW vs USD

[Photo by MK DB]

South Korea’s foreign exchange reserves thinned $9.4 billion in June in the biggest fall since the outbreak of the 2008 global financial crisis as authorities struggled to defend the Korean currency under 1,300 won versus the U.S. dollar, a threshold last breached in July 2009, on top of widening trade deficit.

According to data released by the Bank of Korea (BOK), the country’s foreign exchange reserves stood at $438.28 billion at the end of June, down $9.43 billion from $447.71 billion at the end of May. It is the steepest decline since $11.75 billion ebb in November during the 2008 global financial crisis.

The BOK admitted dollar-selling intervention to ease volatility in the foreign exchange market contributed to the sharp loss in the FX reserve.

The Korean won fell below 1,300 threshold against the U.S. dollar for the first time in 13 years in June. The market believes foreign exchange authorities in Korea sold foreign exchange reserves to boost the currency.

A release by the BOK last week showed that authorities spent a record $8.3 billion in U.S. dollars in the first quarter to stabilize the forex market. The market believes the central bank would have spent a bigger amount in the second quarter to defend the value of the Korean won as cheaper currency makes imports more expensive and can aggravate inflation.

The country’s foreign exchange reserves have been receding for the fourth straight month in June.

By asset type, securities including government bonds and corporate debt thinned $6.23 billion in a month to $395.27 billion in June. Deposits came to $19.23 billion, down $2.64 billion from the previous month.

The country’s reserve position with the International Monetary Fund (IMF) fell $60 million to $4.42 billion and the special drawing rights, international reserve asset created by the IMF, declined $510 million to $14.57 billion. Gold reserves were unchanged at $4.79 billion.

Korea remained the world’s ninth-largest holder of foreign exchange reserves as of the end of May. China was the largest holder with $3.13 trillion, followed by Japan with $1.33 trillion, and Switzerland with $1.04 trillion. Russia was the fifth-largest holder with $587.4 billion.

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