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By Yi Whan-woo
Korea's foreign exchange reserves fell at the fastest pace since the 2008-09 global financial crisis, adding to concerns of another possible economic emergency in the midst of other worsening economic indicators.
According to the Bank of Korea (BOK), Thursday, the foreign exchange reserves shrank to $416.77 billion in September from $436.43 billion in August.
The $21.8 billion decline marked the sharpest month-on-month fall in the foreign exchange reserves since October 2008, when they shrank by a record $27.42 billion in the midst of the global financial crisis.
The BOK attributed the sharp fall to foreign exchange authorities unloading the government's U.S. currency holdings to stabilize a sharp depreciation of the Korean won against the dollar last month.
The fall was also attributed to a decline in the converted value of non-dollar assets due to the continued strengthening of the greenback, the central bank explained.
The Korean currency depreciated around 16 percent against the dollar so far this year, and breached a 13-and-a-half-year low of 1,440 won per dollar at one point during trading on Sept. 28.
The central bank, however, dismissed concerns over the possibility of another financial crisis, assuring that the country's foreign currency reserves remain sufficient to deal with financial instability.
"The BOK thinks that our foreign exchange reserves remain sufficient," Oh Kum-hwa, a senior BOK official, told reporters, noting Korea is ranked eighth in terms of the size of foreign reserves by countries in August.
China tops the ranking with foreign currency reserves worth $3.05 trillion, followed by Japan with $1.29 trillion, Switzerland with $949.1 billion, Russia with $565.7 billion, India with $560.4 billion, Taiwan with $545.5 billion and Saudi Arabia with $456.6 billion.
All eight top-ranked countries except for Japan saw declines in their foreign exchange reserves between July and August.
The reserves of China shrank by $49.2 billion, while Switzerland's fell by $10.7 billion, Russia's by $11.2 billion, India's by $13.9 billion, Taiwan's by $2.3 billion, Saudi Arabia's by $6.6 billion and Korea's by $2.2 billion.
Korea's foreign exchange reserves have decreased by a monthly average of $4.77 billion in recent months, compared to a monthly fall of around $7 billion to $8 billion during the 2008-09 financial crisis.
"It is not quite appropriate to describe the current economic conditions as a financial crisis," Oh said.
Nevertheless, some economists pointed out the pace of the decline can be worrisome when coupled with the soaring won-dollar exchange rate, trade deficit and other factors that can further result in the need for authorities to unload dollars to stabilize the currency market.
"You can't be sure how much stronger the dollar will get," said Yonsei University economics professor Kim Jung-sik, pointing out that foreign investors have owned a considerable portion of Korean shares and that their departure over a persistently strong dollar can wreak havoc on the currency market.
The professor assessed the trade deficit, which stayed in the red for the sixth straight month in September, can dent the trade-reliant Korean economy and deal a blow to the overall financial market.
Woo Seok-jin, a Myongji University economics professor, pointed out that a decline in foreign exchange reserves can be problematic as it can be interpreted as "the nation's vault getting empty at a time of growing national debt and fiscal deficit."
The country's national debt is anticipated to surpass 1,000 trillion won and reach 1,068.8 trillion won within this year, after posting a fiscal deficit for three straight years through 2021.
"The national debt is believed to be at a bearable level for the moment, but it can hurt the sovereign credit rating in the long term as it is on the rise," the professor said.
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