Shaky greenback buoys FX reserves

Korea’s foreign exchange reserves rebounded in October from a three-year low as a weaker dollar raised the conversion value of nondollar assets, the central bank said yesterday.

The country’s foreign reserves reached $310.98 billion as of the end of October, up $7.6 billion from the previous month, according to the Bank of Korea.

The October reading marked the largest monthly gain since the FX reserves grew by $8.58 billion in April. In September, the reserves fell by the most since the onset of the 2008 global financial crisis on a stronger greenback and suspected dollar-selling intervention.

Foreign reserves consist of securities and deposits denominated in overseas currencies, along with International Monetary Fund reserve positions, special drawing rights and gold bullion.

The FX reserves hit a fresh record high of $312.19 billion in August since they surpassed the $300 billion mark for the first time in April amid sustained inflows of foreign capital and robust exports.

“A softer U.S. dollar boosted the conversion value of the euro and the pound last month. Investment profit also rose as the reserves are on the rising trend,” said Shin Jae-hyuk, an economist at the BOK.

In October, the euro appreciated 3.4 percent to the dollar on growing prospects that European leaders may lay out comprehensive measures to contain the euro zone debt crisis. The British pound rose 3.2 percent against the greenback.

Despite the rise in the reserves in October, nagging concerns about the euro zone debt crisis and a dimmer global economic outlook are heating up debate on whether Korea has enough ammunition to cope with a potential foreign exchange liquidity crunch.

Last month, the country expanded its currency swap lines with China and Japan in a bid to secure foreign exchange liquidity amid growing external economic uncertainty.

As of the end of September, Korea was the world’s eighth-largest holder of foreign exchange reserves.

Yonhap