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Forex reserves shrink for 4th month in a row

Published: 04 Mar. 2016, 20:09

As the dollar’s strength continues, Korea’s foreign exchange reserves shrank for the fourth consecutive month. But Korea maintained its position as holder of the world’s seventh-largest foreign reserves pool as of January.

According to the Bank of Korea (BOK) on Friday, Korea’s foreign reserves as of February stood at $365.8 billion. That’s $1.54 billion less than the previous month.

Foreign reserves have been shrinking since November, when it fell to $368.4 billion from the previous month’s $369.6 billion largely on the strengthening greenback.

The dollar has been strengthening since November as there were clear signs that the U.S. Federal Reserve would start normalizing its monetary policy on the back of a recovering economy. The U.S. central bank finally raised its interest rate in December. The Chinese economy and other emerging markets’ struggles also contributed to the dollar appreciation.

The dollar’s strengthening only eased up recently thanks to aggressive economic stimulus policies pushed by the Chinese government. There are growing expectations that further hikes in U.S. interest rates may be delayed due to the weak world economy.

“The depreciation of major currencies like the Japanese yen, euro and pound was the cause of the smaller foreign reserve pool,” a BOK official said.

Stocks, which account for the largest portion of the foreign reserves pool - 92 percent - added $100 million from the previous month to reach $336.5 billion. Deposits, the second-largest portion with 5.5 percent, fell $1.2 billion to $20.3 billion.

China still has the largest foreign reserves pool in the world with $3.23 trillion, although this figure is $99.5 billion less than the previous month. Japan held the second position with $1.25 trillion, followed by Switzerland with $604.9 billion.

By LEE HO-JEONG [[email protected]]