[A-List] Korean CB to lend out $ Reserves

["Anne Williamson" <annewilliamson@xxxxxxx>]

Forward from "Austrians in Finance" List:


My comment: Now that the gold is gone, Central Banks appear to be forced to 
lease out their other worthless assets. Korea is going to start lending out 
its $ hoard. I think that global central banks are feeling a little $ 
indigestion.


Hankooki.com > The Korea Times > Biz/Finance


 BOK Ups Ante for Reserve Efficiency



By Na Jeong-ju
Staff Reporter


The central bank is actively taking steps to more effectively manage its 
bloated foreign exchange reserves as the value of the reserves has been 
falling due to the dollar¡¯s weakness.

In a departure from its conservative stance on the use of currency reserves 
for investment purposes, the Bank of Korea (BOK) yesterday said it will 
increase its lending of foreign currencies to local banks to promote their 
overseas securities investments.

Beginning this month, banks will be allowed to use the loans from the BOK to 
buy foreign stocks and bonds. Banks can exchange up to $5 billion worth of 
Korean currency into dollars at the central bank through currency swap 
deals, and invest the money in overseas securities markets.
In addition, the central bank has permitted banks to lend dollars to 
companies as part of efforts to boost overseas investments.

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.¡¯¡¯

Foreign exchange dealers work in the dealing room of the Korea Exchange Bank 
headquarters in Seoul, Thursday, as the won extended its gains against the 
yen. The won posted a modest downward correction yesterday as it closed at 
779.72 won per 100 yen, down 0.31 won.

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.

The sharp rise of foreign exchange reserves is largely due to the rise in 
the issuance of currency stabilization bonds. Also responsible were 
increased earnings from investments of reserves in overseas securities and a 
hike in the foreign currency reserve requirements.

In late December, the central bank raised the required reserve ratio on 
foreign currency demand deposits by two percentage points to 7 percent in a 
bid to curb market liquidity amid soaring property prices. Foreign exchange 
reserves consist of securities and deposits denominated in foreign 
currencies along with International Monetary Fund reserve positions, special 
drawing rights and gold bullion.

The country¡¯s foreign currency reserves have been growing steadily as 
currency authorities have stepped up their intervention in currency trading 
as the dollar weakens. They continued to buy dollars to curb the won¡¯s 
strength against the dollar.

The BOK began currency swap deals with commercial and state-owned banks in 
July last year in a bid to prevent the dollar from weakening on the local 
currency market. As of Dec. 15, currency swap deals between the BOK and 
banks stand at $500 million, but the transactions are expected to grow 
sharply in the coming months.

The central bank recorded a 1.4 trillion won deficit in the first six months 
of the year largely due to rising interest payments on monetary 
stabilization bonds it issued to absorb liquidity and stabilize the currency 
market. It posted 1.87 trillion won in losses in 2005 and a 150 billion won 
loss in 2004.