South Korea's foreign reserves drop as central bank defends won

South Korea's foreign exchange reserves fell by nearly $880 million in May, reversing a brief rebound in April. The decrease stems primarily from the central bank's use of reserves to defend the won against a strengthening dollar.

The Bank of Korea reported that the total foreign exchange reserves stood at $426.99 billion at the end of May. This marks a continuation of a downward trend observed since December, interrupted only by a slight increase in April. The bank cited market stabilization measures, including foreign currency swaps with the National Pension Service, as the main reason for the decline.

These interventions, however, did not prevent the won from weakening. The dollar-denominated won closed May at 1507.9 won per dollar, up from 1483.3 won at the end of April. The currency has largely remained above the 1500-won mark since mid-May, a trend attributed to a strong dollar driven by factors such as the conflict between the U.S. and Iran.

Despite the recent dip, South Korea maintained its position as the world's 12th largest holder of foreign exchange reserves as of late April, with $427.9 billion. This ranking places it behind Hong Kong and ahead of numerous other nations, with China holding the largest reserves globally.

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The primary reason for the decline was market stabilization measures, including foreign currency swaps with the National Pension Service.