By Kang Seung-woo
Korea’s foreign exchange reserves remain at reasonable levels based on the revised metrics to assess the adequacy of foreign reserves by the International Monetary Fund (IMF), the finance ministry and the central bank said Friday.
According to the Ministry of Strategy and Finance and the Bank of Korea (BOK), the executive board of the intergovernmental organization remodeled its standard to estimate each country’s reserve adequacy in March, divided into three categories ― advanced-market countries, emerging market economies and low-income countries ― based on the broad characteristics of each nation.
The new metrics take into account four risk factors such as exports and short-term foreign debts.
“The IMF did not calculate Korea’s foreign reserves with its yardstick. But we applied the same calculation method and found that the country's reserves are within the appropriate level,” said an official at the finance ministry.
This announcement came after Korea’s foreign reserves reached a record $307.2 billion as of the end of April, up $8.58 billion from March, according to the BOK.
The reserves exceeded the $300 billion level for the first time in April after it rose to above the $200 billion mark in February 2005, it added.
Foreign reserves have been on the rise as dollar inflows have increased amid robust exports and foreign investors’ sustained buying of Korean assets.
Foreign reserves consist of securities and deposits denominated in overseas currencies, along with IMF reserve positions, special drawing rights and gold bullion.
As of the end of March, Korea, Asia’s fourth-largest economy, was the world’s seventh-largest holder of foreign exchange reserves after China, Japan, Russia, Taiwan, Brazil and India.
The continued growth in the foreign exchange reserves has sparked controversy over the adequate level of the reserves because the holding of a large volume incurs high costs as well, but the announcement by the government offices is expected to quell the dispute.
Many emerging economies have been confirmed to accumulate foreign exchange reserves as a form of self-applied insurance to handle abrupt foreign capital outflows.