Korea Hoards 7th-Largest Foreign Currency Reserves

      August 06, 2014 11:50

      Korea's foreign currency reserves continue to swell to record amounts for the 13th month in a row.

      According to the Bank of Korea on Tuesday, Korea's forex reserves stood at US$368 billion as of the end of July. Korea ranked seventh in the world at the end of June.

      China ranked first with $3.99 trillion, followed by Japan ($1.28 trillion), Switzerland, Russia, Taiwan and Brazil. Brazil's foreign currency reserves are just $7 billion larger than Korea's, making it possible for the country to move up to No. 6 this year.

      The surge in Korea's reserves stems from 28 consecutive months of current account surpluses. But critics say the growth is not a sign of a healthy economy since it happened as the growth in imports outpaced export growth.

      Some say the reserves are too big. Although a sizeable reserve can act as a buffer against an exodus of foreign capital from Korea's financial markets in times of economic turmoil, it costs money to maintain it and the excessive dollar holdings lead to a strong won.

      A strong won in turn makes Korean exports more expensive overseas.

      The IMF said in a recent report that it costs Korea an estimated W7.3 trillion (US$1=W1,030) to maintain its foreign currency reserves, which is double the size of the nation's annual childcare budget in 2014.

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