The Korea Times reports in this
article on the increasing difficulty that the Korean central bank is
having in managing its foreign (mostly dollar) reserves.
China Daily reports Nation
to explore, expand use of forex reserves
From the KT:
The country’s foreign currency reserves increased
$28.6 billion last year to $238.9 billion, marking the world’s fifth
largest holder of foreign currencies. China is the largest holder of foreign
currencies with $1.01 trillion as of the end of October, followed by Japan with $896.9 billion, Russia with $283.4 billion and Taiwan with $265.1 billion, according to
the central bank.
From China Daily:
Chinese Premier Wen Jiabao said that China would steadily push forward the foreign exchange rates reform and actively explore
and expand the use of its US$1.06-trillion foreign exchange reserves.
...
Analysts claim that the US$1.06-trillion reserve could buy Microsoft,
Citibank, and ExxonMobil Corp. as well as General Motors and Ford.
...
On Monday, the People's Bank of China, or central bank, announced that its
foreign reserves, already the world's largest, hit US$1.0663 trillion at the
end of last year, up US$247.3 billion from the end of 2005.
...
China needs foreign exchanges to meet its payment requirement for import
and export. Apart from that, the surplus should be best allocated and
invested to achieve highest returns, said Lin Yifu, a renowned economist from
Peking University's China Center for Economic Research.
The Bank of Korea (BoK) has
accumulated most of its reserves in an attempt to frustate the rise of its
currency against the US$. The BoK, instead of directly investing the dollar
reserves, is reportedly issuing what are in effect margin loans to Korean
banks for the purchase of foreign securities.
The Korea Times writes:
The measures are expected to fuel demand for dollars in
the currency market, helping stem the won from becoming stronger against the
dollar. At the same time, the BOK can use its won reserves to ease its
deficit, which has grown sharply in recent years, BOK officials said.
``The growing foreign
exchange reserve has been of great concern to us,’’ a BOK
official said. ``To cope with the problem, we plan to expand the use of
currency reserves for companies and banks. To some extent, this will be
helpful in easing the surging deficit at the central bank.’’
The upsurge in dollar reserves, according to the
article, is due to a rise in the issuance of "currency stabilization
bonds" (a form of sterlization) and an increase in the reserve
requirement for commercial banks. The latter refers to the ability of Korean
fractional reserve commercial banks to expand credit on a base of foreign
currency deposits.
I have written on the topic of
growing non-US central bank reserves here
and here. In short,
several central banks and other government reserve funds have been
accumulating dollars at a rapid rate and are adopting various
"investment" strategies in order to earn a return on them. As these
reserve holdings continue to grow at a rapid rate, the pressure on government
bodies to "invest" them will continue to build.
Robert Blumen
Robert Blumen is an independent
software developer based in San Francisco, California
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