Foreign Currency Reserve of USD 112.4 billion, 4th place in the world

Korea’s foreign currency reserve which decreased to USD 3 billion at a financial crisis of 1997, increased considerably, and so the Korea became the 4th place in the world. As the foreign currency reserve of Korea sharply increased by USD 10 billion this year after the lapse of 6 months, there are controversies over whether Korea which is the thirteen place in the economic size, should retain the large foreign currency.

According to the Bank of Korea (BOK) on July 3, the foreign currency reserve as of the end of June was USD 112,438,000,000, increased by USD 2,880,000,000 after one month. Hence, Korea became the 4th place after Japan, China and Taiwan.

Hong Kong plans to announce the foreign currency reserves as of the end of June on July 10, but there is no change for several months. Accordingly, it is sure to occupy the 4th place for Korea. This 4th place of Korea is achieved earlier than a forecast of BOK.

From 1st place to 5th place, there are all Asian countries.

Bank of Korea explained, “Increasing the foreign currency reserves is because the conversion amount of USD assets and increasing operation profits of retaining exchange”.

According to a report on proper retaining exchange of emerging nations by IMF in September, 2001, sufficient foreign currency reserves will be a breakwater of the foreign exchange risk, but excessive reserves are the squandering of the nation`s resources. Accordingly, it is somewhat undesirable that some countries experienced in the financial crisis have retained larger amount of reserves than needed.

IMF advices emerging countries to retain the foreign exchange over ‘adding the capital withdrawal size of estimated withdrawal of residents to the short-term foreign loan which must be repaid within 1 year. It says that the proper foreign currency reserves of Korea is around USD 63.2 billion ~ USD 70.5 billion.

However, Park Seung, the governor of the Bank of Korea announced, “Even in the future financial crisis, the proper level of maintaining the nation’s credit is USD 90 billion.

Accordingly, the current foreign currency reserves can be in the proper scope. Also, considering the national credit status, the reserves could increase a little bit more”.

BOK explained that the foreign currency reserves are not excessive because the securities investment of foreign investors amounts to approx. USD 90 billion and the corporate foreign borrowing amounts to approx. USD 20 billion.

Sang-Chul Kim sckim007@donga.com