South Korea plans to cut its foreign exchange stabilization fund by more than 30 percent by 2025

South Korea plans to cut the foreign exchange stabilization Fund by more than 30 percent in 2025, but authorities say the fund is still sustainable to defend the won.

The Korean won fell 3.7 percent against the U.S. dollar through the end of August, making it Asia's second-worst performing currency after the Taiwan dollar.

Hee Jae Kim, director of the foreign exchange market department at the Finance Ministry, said in an interview Monday that South Korea has sufficient foreign exchange reserves and the size of the foreign exchange stabilization Fund's assets is sufficient to respond to the foreign exchange market.

"Reducing the size of the fund does not necessarily mean reducing its responsiveness to currency markets," he added.

The government plans to cut the size of the foreign exchange stabilization fund from 205.1 trillion won this year to 140.3 trillion won in 2025. The reduction is the largest since the fund was created in 1967 to deal with excessive volatility in the won.

Woori Bank economist Min Gyeong-won said the impact of the reduction would be minimal, given that foreign exchange reserves are now more than three times South Korea's short-term external debt. When the won falls, companies sell dollars from their foreign exchange deposits. If the won appreciates, retail investors' demand for dollars to invest in overseas stocks will follow.