South Korea’s foreign exchange reserves are insufficient

South Korea’s foreign exchange reserves hit a record high of $469.21 billion in October last year, then began to decline and reached $438.28 billion in June this year. The June figure is below the levels recommended by the BIS and the IMF. That month, they mentioned $783.91 billion and $644.55 billion respectively as South Korea’s adequate foreign exchange reserves.

Experts say South Korea is successfully managing its foreign exchange reserves, but the problem is that the KRW-USD exchange rate is fluctuating more and more as the Fed raises rates. On August 19, the exchange rate touched 1,328.8 won per dollar, the highest since April 2009.

At the same time, a rising trade deficit and a shrinking current account surplus add downward pressure on reserves. South Korea’s trade deficit totaled $15.25 billion in the first seven months of this year. Its current account surplus was $24.78 billion in the first half compared to $41.76 billion in the first half of last year.

Short-term external borrowing is increasing rapidly as the demand for and supply of foreign exchange remain volatile. As a result, in the second quarter, South Korea’s short-term borrowing ratio rose 3.7 percentage points to a 10-year high of 41.9%.

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