Korea And The World

As of July 2015, South Korea’s central bank owned foreign exchange reserves worth over 370 billion US dollars -- an astounding amount. This so-called “war chest” is a direct result of South Korea’s painful experience during the Asian Crisis in 1997-1998. Confronted with massive capital flight as foreign investors demanded repayment for the loans they had granted Korean firms -- which were mostly denominated in U.S. dollars -- the Korean central bank quite literally ran out of foreign currency. In effect, the Korean private sector could not get hold of enough U.S. dollars and other major foreign currencies to pay back their cross-border debts. This situation led to a severe financial crisis, which left South Korea no choice but to petition the International Monetary Fund (IMF) for help. The Asian Crisis took a severe toll on Korea: corporate bankruptcy rates skyrocketed and over two million people lost their jobs. To prevent future economic downturns from leading into another foreign exchange crisis, the Korea