Foreign reserves hit all-time high of $289 bil.

By Kang Seung-woo

Korea’s foreign exchange reserves hit a new record high in September on the back of a jump in investment returns and an increase in the conversion value of the euro- and British pound-denominated assets against the U.S. dollar.

The state intervention to curb the rapid strengthening of the local currency against the dollar also contributed to the increase, according to market experts. The won has been on a sharp gain due to high current account surpluses and foreigners’ strong buying in the equity market.

The Bank of Korea (BOK) reported Monday that the nation’s foreign reserves reached $289.78 billion as of the end of last month, up $4.42 billion from a month ago and well above the previous record of $285.96 billion recorded in July.

It was the third time in 2010 for the foreign reserves to reach a fresh record high following April and July. The reserves in April reached $278.87 billion after beating the previous record of $273.69 billion in January.

Foreign reserves consist of securities and deposits denominated in overseas currencies along with International Monetary Fund (IMF) reserve positions, special drawing rights and gold bullion.

The BOK said the increase was due to a rise in operating proceeds on the foreign reserves and growth in the U.S. dollar conversion value of assets in other currencies such as the euro and pound, while those currencies strengthened against the greenback.

“Amid an increase in investment profits, the reserves rose last month as a stronger euro and pound boosted their dollar conversion values,” Moon Han-geun, an official at the BOK, told reporters.

In September, the U.S. dollar lost ground against major currencies on expectations of additional monetary easing by the United States. The euro appreciated 7.6 percent against the dollar, and the pound advanced 2.4 percent.

Market players also speculated that the government’s dollar-buying intervention in the currency market to battle the soaring value of the won had an influence on the amount.

Actually, the BOK said last month that the government entrusted part of its currency stabilization fund further into the country’s sovereign wealth fund, Korea Investment Corporation (KIC), which contributed to eroding the reserves’ gains.

Meanwhile, the market expects the foreign reserves to top $300 billion by the end of this year because the current account is predicted to remain in the black for the rest of the year and a weak U.S. dollar is likely to continue.

As of the end of August, Korea, Asia’s fourth-largest economy, was listed as the world’s fifth-largest holder of foreign exchange reserves after China, Japan, Russia and Taiwan.