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BOK downplays concerns over fall in foreign reserves

April 27, 2023 - 15:56 By Im Eun-byel

View of the Bank of Korea headquarters (high-rise building, center), with the Bank of Korea Museum in front, Seoul (BOK)

The Bank of Korea has refuted reports claiming that the amount in Korea's foreign reserves has fallen to the level below what the International Monetary Fund suggests as “adequate.”

"The amount of Korea's foreign reserves stands at $426.07 billion, the ninth-largest in the world," the central bank said through a press release Wednesday, referring to the figure drawn up at the end of March.

"The IMF also assessed the reserve shows an adequate response to external shocks through its external sector report, the Article IV report,” the BOK continued, referring to reports issued in 2022.

On Wednesday, some media reports pointed to the fact that Korea’s foreign exchange reserves have been falling below the level of "adequate" suggested by the IMF over the past three years.

The reports said the IMF rated Korea’s reserves to be at 97 percent last year, 99 percent in 2021 and 98.9 percent in 2020 through its Assessing Reserve Adequacy dataset, whereas the IMF views 100 percent to 150 percent to be an adequate level.

“Though Korea’s ARA dataset is slightly below the recommended level suggested by the IMF, its foreign reserves remain adequate according to the organization, considering other factors,” an official from the BOK said, referring to how the IMF evaluates the foreign currency measures of different countries, net foreign assets and short-term debt along with the ARA dataset.

Korea’s foreign exchange reserves showed a drop in 2022, falling from $463.1 billion in 2021 to $423.1 billion in 2022 as the dollar prevailed. They rose slightly earlier this year to $426.07 billion in March as the dollar weakened, increasing the conversion value of holdings in other currencies.

The BOK added that global credit rating agency Fitch recently evaluated Korea’s foreign reserves to be of a sufficient level despite the decline in their amount shown in 2022.

Concerns about Korea's foreign exchange reserves have been mounting as the volatility in the currency rate has been escalating. Fears of a wider banking crisis have reignited after shares of US-based First Republic Bank hit an all-time low this week.

In the past few weeks, the Korean won has been weakening against the dollar. The currency rate hit up to 1,340.5 won on Wednesday, surpassing the 1,340 won mark for the first time in five months since Nov. 29.

It closed at 1,338 won on Thursday, up 1.7 won from the closing price of 1,336.3 won from Wednesday.