South Korea's foreign exchange reserves saw a record-breaking increase of $14.33 billion in August, reaching a total of $442.28 billion. This surge represents the largest monthly gain since the Bank of Korea began compiling data in 1971, surpassing the previous record of $14.29 billion set in May 2009. The reserves have now increased for three consecutive months and are at their highest level since May 2022.
The primary drivers behind this significant increase include a sharp rise in foreign-currency deposits by financial institutions, increased investment income, and the appreciation of other currency assets against the US dollar. The Bank of Korea's decision to pay interest on excess foreign-currency reserves earlier this year incentivized banks to place more surplus foreign currency with the central bank. Additionally, strong semiconductor exports contributed to a record $34.75 billion trade surplus in August, bolstering foreign currency liquidity in the domestic market.
By asset type, securities holdings, which form the largest component of the reserves, increased by $7.07 billion to $387.07 billion. Deposits saw a substantial rise of $7.17 billion, reaching $30.30 billion. Special Drawing Rights (SDRs) grew by $60 million to $15.77 billion, and South Korea's reserve position at the International Monetary Fund increased by $30 million. Gold reserves remained unchanged at $4.79 billion, valued at acquisition cost.
In a notable change, the Bank of Korea quietly ceased its 25-year practice of publishing the country's global reserve ranking in its monthly report. The central bank stated that international rankings can fluctuate for reasons unrelated to a country's underlying external soundness, making them less meaningful as an indicator. South Korea's ranking had seen significant swings this year, falling as low as 13th in May before rebounding to 10th in June.
Despite the three consecutive monthly gains, the current reserves of $442.28 billion remain below their all-time high of $469.21 billion recorded in October 2021. The increase was also reportedly supported by South Korean foreign-exchange authorities purchasing approximately $20 billion in dollars repatriated by SK hynix following its $26.5 billion American depositary receipt offering in July.
