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FX reserves fall $10B after ‘Brexit’

Korea’s foreign exchange (FX) reserves shrank by more than $10 billion in June as a result of the British referendum to leave the European Union.

According to the Bank of Korea on Tuesday, the country’s FX reserves stood at $369.9 billion in June, down $10.1 billion from May. The reserves continued decreasing for the second consecutive month, and the level fell below $370 billion for the first time in three months.

“The drop is largely attributable to the fall in value of pound-denominated assets when converted to dollars,” said Yang Yang-hyun, an official at the Bank of Korea.

Because of “Brexit”, the British pound depreciated nearly 8 percent in late June compared to a month before. The pound was traded at 1.36 dollars at the end of June.

Since the Korean won is expected to weaken, while the U.S. dollar is likely to get stronger for the time being, the country’s FX reserves, one of tools that the government can use to protect the local market from possible fluctuations in the global market, might continue to shrink, experts say.

Financial experts are calling for the resumption of the currency swap between Korea and the United States, which expired in February 2012.

On June 24, after the British poll result came out, Vice Finance Minister Choi Sang-mok mentioned that the government would seek cooperation with the G-20 nations to take measures against the widening ripple effects of the Brexit, including currency swaps.

Among the FX reserves, securities, including government bonds, corporate bonds and asset-backed securities, rose $130 million to $335.5 billion, the data showed.

Meanwhile, deposits fell $1.1 billion to $25.3 billion. Korea’s special drawing right (SDR) held by the International Monetary Fund dropped $20 million to $2.54 billion. The central bank’s gold reserves stayed unchanged at $4.79 billion compared to the previous month.

Korea remains the seventh largest country with FX reserves, the BOK said, after China, Japan, Switzerland, Saudi Arabia, Taiwan and Russia. China is the world’s largest with about $3.2 trillion in FX reserves.

BY SONG SU-HYUN [song.suhyun@joongang.co.kr]