The won-dollar exchange rate has surged past the 1,550 mark, reaching its highest level in 17 years, yet the Bank of Korea (BOK) maintains that its foreign exchange reserves are sufficient to withstand external shocks.
In the Seoul foreign exchange market today, the won-dollar exchange rate expanded its gains from early trading, eventually crossing the 1,550 threshold.
This marks the highest level since March 2009, during the global financial crisis.
However, the response the BOK recently submitted to the National Assembly shows a slight disconnect from market concerns.
In a written response to a query from Representative Park Soo-young of the People Power Party, a member of the National Assembly's Strategy and Finance Committee, the BOK stated, "The scale of net external assets is stable, and the ratio of short-term external debt is significantly lower than during past crises, meaning current foreign exchange reserves are not insufficient to absorb external shocks."
As of the end of the first quarter of this year, South Korea's net external assets stood at 365.5 billion dollars, which is 19.5% of its GDP.
The BOK's logic is that the ratio of short-term external debt to foreign exchange reserves is 43.3%, which is low compared to 286.1% at the end of the 1997 Asian financial crisis and 72.4% at the end of the 2008 global financial crisis.
A sustained current account surplus is another defensive argument put forward by the BOK.
The current account surplus has expanded for three consecutive years, recording a surplus of 102.7 billion dollars through April of this year.
However, with the exchange rate now hitting the 1,550 range, some point out that relying solely on these indicators is insufficient to fully calm market anxiety.
This stems from concerns that an excessive rise in the exchange rate could place a burden on inflation and domestic demand.
BOK Governor Shin Hyun-song had already expressed similar concerns during his time as a nominee.
The fact that foreign exchange reserves have recently dipped below the 430 billion dollar mark due to efforts to defend the currency is also cited as a problem.
It is estimated that the foreign exchange authorities have injected approximately 50 trillion won into the market over the past six months to prevent a sharp rise in the exchange rate.
Within the financial sector, there are calls for the BOK to provide more concrete assessments and messaging regarding the ripple effects of a high exchange rate, rather than repeatedly emphasizing existing soundness indicators, as the exchange rate instability appears to be prolonged.
Reported by Lee Hyeon-yeong | Video by Choi Gang-san | Graphics by Lee Jeong-ju | Produced by SBS Digital News
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