S. Koreas FX Reserves Dip to $212 Billion

South Korea's foreign exchange reserves suffered their steepest monthly fall since the 1997-98 Asian financial crisis in October due to an increased liquidity supply to ease financial jitters, the central bank said Tuesday.

The nation's foreign reserves were computed at $212.3 billion as of the end of October, down $27.4 billion from a month earlier, marking the seventh straight month of decline, Yonhap News reported quoting a Bank of Korea (BOK) report.

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

"Despite higher investment profits and an early end of the currency swap deals with the state pension fund, foreign reserves declined as authorities expanded the dollar supply to the banking sector in a bid to calm jitters sparked by the global credit crunch," the BOK was quoted as saying. "A stronger U.S. dollar also brought down the dollar conversion value of assets in other currencies like the euro."

The BOK said foreign exchange authorities supplied more than $20 billion to the market mainly through swap deals or the state-run Export-Import Bank of Korea (EXIM) in October, adding that most of the amount was used to repay foreign debts of local banks.

The fall in the foreign reserve came as South Korea's currency market has been suffering from a dollar shortage amid dollar hoarding by banks and companies on concerns of a financial crisis sparked by the collapse of investment giant Lehman Brothers Holdings. The won has dipped almost 26 percent to the dollar so far this year.

The government and the BOK unveiled a set of measures to pour in foreign-currency liquidity. The government injected a total of $15 billion through the swap deals and EXIM. In mid-October, the BOK adopted an open bidding system for won-dollar swaps, pumping in $2.7 billion last month.

As of the end of September, South Korea was the world's sixth-largest holder of foreign exchange reserves. China held the world's largest foreign reserves with $1.9 trillion, followed by Japan with $995.9 billion and Russia with $556.1 billion. India held the world's fourth-largest reserves with $286.3 billion, followed by Taiwan with $281.1 billion.

The central bank said authorities' possible liquidity injection down the road may not be as large as October's because tightened overseas borrowing conditions are expected to ease and the country's current account is likely to swing to the black in coming months.