South Korea's foreign exchange reserves, which had climbed to their highest level in four years, declined in September for the first time in four months. The drop is attributed to the use of foreign currency assets to fund investment in the United States.
Foreign reserves stood at $440.56 billion at the end of September, down $1.72 billion from the previous month, according to data released by the Bank of Korea on the 6th. Reserves had risen in June (up $370 million) and July (up $590 million) before posting a record monthly gain of $14.33 billion in August, then reversed course last month. The August balance of $442.28 billion was the highest in four years and three months, since May 2022.
A Bank of Korea official said the decline reflected a drop in foreign currency deposits held by financial institutions, the entrustment of assets to the Korea-U.S. Strategic Investment Corp. and a decrease in the dollar value of assets held in other currencies.
The government recently remitted its first $2.4 billion (about 3.26 trillion won) in investment funds to the United States, drawing on foreign currency assets held by the Bank of Korea and the Foreign Exchange Equalization Fund, according to the Ministry of Finance and Economy and other sources. Under the arrangement, the two institutions jointly entrusted $2.4 billion to the fund of the Korea-U.S. Strategic Investment Corp., which then transferred the money to the account of a U.S. special-purpose investment vehicle. The funds will go toward construction of the Encinal combined-cycle gas power plant in Texas, the first project under the U.S. investment program.
The dollar's appreciation in September from August also contributed to the decline in reserves, reducing the dollar-converted value of assets held in euros, yen and pounds.
By asset type, securities including stocks and bonds fell $1.05 billion to $386.03 billion. Deposits declined $350 million to $29.95 billion. Deposits refer to foreign currency funds that banks place with the Bank of Korea.
Special drawing rights at the International Monetary Fund fell $290 million to $15.48 billion. Gold holdings were unchanged at $4.79 billion. The Bank of Korea has announced it will resume purchases of physical gold for the first time in 13 years, with buying expected to begin as early as the end of this year.
Separately, the central bank said it stopped publishing country rankings of foreign reserves last month, a practice it had maintained since 2000. The Bank of Korea said the data can still be checked separately through its Economic Statistics System (ECOS).
