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U.S. dollars. (AP)

South Korea's foreign exchange reserves surged by more than $14 billion (around 19 trillion won) in a single month to mark the largest increase on record, driven by a sharp rise in foreign currency deposits at financial institutions, investment returns, and gains in the conversion value of non-dollar assets.

According to the Bank of Korea on the 3rd, the country's foreign exchange reserves stood at $442.28 billion (approximately 601.4 trillion won) at the end of last month, up $14.33 billion from $427.95 billion recorded at the end of the previous month.

The central bank explained that the sharp expansion in reserves was fueled by a substantial increase in foreign currency deposits placed by financial institutions, returns generated from managing foreign currency assets, and an increase in the U.S. dollar-converted value of other currencies such as the euro and the British pound. This is interpreted as a result of financial institutions with ample foreign currency liquidity expanding their deposits after the BOK began paying interest earlier this year on excess reserves deposited at the central bank as part of measures to improve foreign exchange supply and demand.

Major currencies largely strengthened against the greenback last month. The euro appreciated by 0.5% against the dollar, the pound climbed 0.5%, and the Australian dollar rose 1.9%. Conversely, the Japanese yen depreciated by 0.3% against the dollar. The U.S. Dollar Index, which gauges the greenback's value against a basket of six major currencies, stood at 99.70, down 0.2% during August.

By asset class, securities such as government and corporate bonds totaled $387.07 billion, accounting for 87.5% of total reserves. This represents an increase of $7.07 billion from the preceding month. Deposits came to $30.3 billion, up $7.17 billion.

Special Drawing Rights (SDRs) rose by $60 million from the previous month to $15.77 billion, and the International Monetary Fund (IMF) reserve position expanded by $30 million to $4.34 billion. Gold holdings remained unchanged from the prior month at $4.79 billion.

Meanwhile, the BOK decided to discontinue releasing separate global rankings of foreign exchange reserves starting this month. The decision reflects the view that foreign exchange reserve rankings alone do not adequately reflect a nation's external soundness, and excessive significance could be attached to monthly shifts in rank. Previously, the BOK had presented national rankings alongside its foreign exchange reserve announcements. As of late June, South Korea's foreign exchange reserves ranked 10th globally.

                                                                                                          Han Sang-wook