The Bank of Korea: "Foreign Exchange Reserves Decreased, but External Payment Capacity Remains Sound"

Bank of Korea's '2020 First Half Financial Stability Report'

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The Bank of Korea evaluated that although foreign exchange reserves slightly decreased, the country's external payment capacity generally remains in a sound state.

In the '2020 First Half Financial Stability Report' approved at the Monetary Policy Committee meeting on the 24th, the Bank of Korea analyzed South Korea's external payment capacity as follows.

As of the end of May, foreign exchange reserves stood at 407.3 billion dollars, a decrease of 1.5 billion dollars compared to the end of the previous year. The Bank of Korea explained, "This was mainly due to market stabilization measures by foreign exchange authorities and the recent strengthening of the US dollar, which led to a decrease in the US dollar equivalent of foreign currency assets denominated in other currencies such as the euro and yen."

Due to the impact of the novel coronavirus infection (COVID-19), external debt, which is money owed overseas, increased significantly, resulting in a decline in net external claims.

At the end of the first quarter of this year, net external claims recorded 264.2 billion dollars, a 3.9% (18.6 billion dollars) decrease compared to the same period last year. The Bank of Korea analyzed that due to financial institutions' proactive efforts to secure foreign currency liquidity, external debt (44.8 billion dollars) increased significantly more than external claims (26.2 billion dollars).

The Bank of Korea explained, "The ratio of foreign exchange reserves to short-term external debt was 37.1% as of the end of the first quarter this year, rising from 31.7% in the same period last year, slightly exceeding the usual level, but it remains significantly lower than during the past global financial crisis (78.4%)."

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