south Korea will cut the size of its foreign exchange stabilization fund by more than 30 percent next year, a record amount that the government says is still enough to defend the won.

The move came after the South Korean currency fell 3.7 percent against the U.S. dollar year to date through the end of August, making it the second-worst performer in Asia after the Taiwanese dollar.

“The amount of foreign exchange reserves is sufficient and the size of the fund’s assets is also sufficient to respond to the foreign exchange market,” Hee Jae Kim, director of the foreign exchange market department of South Korea’s finance ministry, told Bloomberg News in a telephone interview on Monday (Sept. 2).

“A reduction in the size of the fund does not necessarily mean a reduction in its responsiveness to the foreign exchange market,” he added.

The government plans to cut the size of the Foreign Exchange Stabilization Fund from 205.1 trillion won (137 billion Singapore dollars) to 140.3 trillion won (137 billion Singapore dollars) in 2025. The cut is the deepest reduction in the fund since it was established in 1967 to counter excessive volatility of the won.

The won’s fluctuations have made South Korean authorities nervous this year. In April, the Finance Ministry’s International Financial Bureau and Oh Kum-hwa, director general of the Bank of Korea’s international department, sent a joint text message saying they were closely monitoring exchange rate movements after the currency’s value fell to 1,400 per dollar – its lowest level since 2022.

The government has extended the currency’s trading hours since July to help its stocks and bonds get included in more global indices, but higher volatility is possible in times of lower liquidity. BLOOMBERG