South Korea’s Foreign Exchange Reserves Drop in July

The big forex news for the month of July 2008 in South Korea was the huge drop in the nation’s foreign exchange reserves, as reported by The Korea Times. According to the Bank of Korea, forex reserves dropped $10.58 billion from June 2008—the biggest drop in one month since 1971. This put the reserves at a 15-month low.

Sources attribute the decline in reserves to the government’s decision to sell its dollar holdings in order to stabilize the won, curb inflation, and prevent further weakening of the economy. In The Korea Times article, a BOK official explained, “The sharp fall was due to the government’s intervention in the currency market in order to prevent the market from being skewed in one direction.” However, some analysts expressed doubts about the effectiveness of this strategy in the long term.