An employee sorts out dollars at Hana Bank's Counterfeit Notes Response Center in central Seoul on Wednesday. (Yonhap)

South Korea's foreign exchange reserves rebounded in March after a two-month decline, backed by deposits and investment gains offsetting the strong US dollar, the central bank said Wednesday.

The country's foreign reserves had come to $419.25 billion as of late March, up $3.51 billion from the previous month, according to the data from the Bank of Korea.

The figure had been on a decline for the first two months of the year, down $4.4 billion and $20 million in January and February, respectively.

The strengthening of the US dollar resulted in a fall in the converted value of holdings denominated in other currencies, bringing down the overall international reserve for Korea.

But in March, the foreign reserves turned to an expansion, as increases in deposits and investment gains balanced out the losses.

"Though the strong US dollar brought down the converted value of foreign assets held by the BOK, gains from investment and deposits offset the decrease and raised the amount held by the overall reserve,” the central bank explained.

Foreign securities, which take up the largest part of the reserve, stood at $364.89 billion in March, up $4.63 billion on-month, accounting for 87 percent of the total. The securities comprise US Treasurys, government agencies and corporate bonds.

Deposits worth $30.5 billion were held by the central bank in the same month, up $8.73 billion on-month, accounting for 8.7 percent.

The rest of the foreign reserve consists of special drawing rights of $14.7 billion (3.5 percent), gold worth $4.8 billion (1.1 percent) and the country’s claims related to the International Monetary Fund at $4.3 billion (1 percent).

In late February, Korea ranked as the world's ninth-largest holder of foreign reserves with its reserve amounting to $415.7 billion at the time.

China was the country with the largest foreign reserve in the world at $3.28 trillion, followed by Japan at $1.28 trillion, Switzerland at $854.4 billion, India at $625.2 billion, Russia at $582.6 billion, Taiwan at $569.4 billion, Saudi Arabia at $431.7 billion and Hong Kong at $425.2 billion. Korea was followed by Singapore at $357.3 billion.

The greenback continues to remain strong this year, backed by data suggesting the resilience of the US economy. Strong economic data suggests the US Federal Reserve is unlikely to cut the key interest rate soon, bringing down the preference for higher risk assets, including the Korean won.

The US dollar index, a metric of the dollar value against major six peers such as the euro, pound and yen, rose 0.5 percent in March, the central bank said. The rise indicates that the value of the US currency relatively strengthened.

The euro index dropped by 0.5 percent, while the pound index and yen index decreased by 0.3 percent and 0.5 percent, respectively, in the cited period.

With the strong US dollar, the Korean won-US dollar exchange rate broke its yearly high on Tuesday.

The Korean won closed at 1,352.1 won against the US greenback on that day, finishing the session above 1,350 won for the first time in five months. During intraday trading hours, it even peaked at 1,355.9 won, breaking the record for this year.

The won-dollar exchange rate stood at 1,349.9 won as of 12:08 p.m. on Wednesday, strengthening 2.2 won from the previous session’s close.

By Im Eun-byel (silverstar@heraldcorp.com)
The Korea Herald