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Bank of Korea May Buy Australian, Canadian Assets (Update3)
Feb. 22 (Bloomberg) -- South Korea's central bank, which controls the world's fourth-largest foreign currency reserves, plans to invest in higher-yielding investments than U.S. Treasuries, including Australian and Canadian dollar assets.
The Bank of Korea laid out plans to boost returns on its $200 billion holdings in a briefing paper distributed to lawmakers on Friday. The National Assembly's Finance and Economy Committee members will discuss the central bank's 2005 business plan on Feb. 24, which needs approval from the assembly.
The dollar fell the most in more than four months against the yen, and plunged against the euro and the won, on concern China, Japan and Taiwan also plan to diversify their assets. The Bank of Korea wants to increase returns on reserves, equivalent to 29 percent of gross domestic product at the end of 2004, because a slump in the dollar is eroding their value.
``The foreign currency reserve is now a problem for the central bank, compared with the size of the nation's economy,'' said Yi Hyo Keun, a senior economist at Daewoo Securities Co. in Seoul. ``The dollar's ongoing weakness is adding pressure for it to find out measures to increase returns.''
South Korea's won rose the most out of 17 of the world's major currencies including the New Zealand dollar and the Japanese yen today after an earlier report that the Bank of Korea plans to diversify its reserves.
The won soared 1.7 percent to 1,006.10 against the dollar as of 4 p.m. local time, its largest advance since April 6, 2001, according to Seoul Money Brokerage Services Ltd. It was the strongest close since Nov. 14, 1997. The won gained 13 percent last year against dollar.
Investments
The central bank plans to expand investments in higher yielding products by diversifying investment targets to Canadian dollar-denominated and Australian-dollar denominated assets which typically carry higher interest rates, the 12-page briefing document said.
The Canadian dollar has declined 2 percent against the dollar this year, while the Australian dollar gained 1.7 percent, according to Bloomberg Analytics.
The country's foreign currency reserves are currently invested mainly in assets denominated in U.S. dollars, euros, Japanese yen, and British pounds, it said.
Reduce Holdings
Goldman Sachs Group Inc. earlier this month said Asian central banks will probably reduce the amount of dollars they hold as foreign-exchange reserves, joining Merrill Lynch & Co. and HSBC Holdings Plc in predicting the U.S. currency will decline for a fourth year.
``You simply don't want to hold all your assets in a currency that's going to be weakening for the foreseeable future,'' Thomas Stolper, a currency strategist at Goldman in London, said in an interview today. ``Changes to central bank reserves are going to be a negative factor for the dollar.''
Central banks, including the People's Bank of China and the Bank of Korea, will lift the portion of euros and yen in their reserves, Stolper said.
Of the three most-traded currencies, the share held in euros will rise to 32 percent from 22 percent, he estimates. Federal Reserve Chairman Alan Greenspan said in a Feb 4 speech in London that purchases from Asian investors are helping support the dollar.
Korean investors, including the Bank of Korea, held $69 billion in Treasuries as of December, the most recent figures available, according to the Treasury Department. Japan, the largest, has $711.8 billion.
South Korea had $200 billion in foreign currency reserves as of Feb. 15, the world's fourth-largest holding after Japan, China and Taiwan. The country increased its foreign-currency reserves from $8.9 billion it held in 1997.
``The sheer size of Korea's reserves makes it unignorable,'' said Tetsu Aikawa, currency sales manager in Tokyo at UFJ Bank Ltd., a unit of Japan's fourth-largest lender. ``That revives the memory in people's minds how badly the dollar was sold when Russia said it was diversifying.''
Feb. 22 (Bloomberg) -- South Korea's central bank, which controls the world's fourth-largest foreign currency reserves, plans to invest in higher-yielding investments than U.S. Treasuries, including Australian and Canadian dollar assets.
The Bank of Korea laid out plans to boost returns on its $200 billion holdings in a briefing paper distributed to lawmakers on Friday. The National Assembly's Finance and Economy Committee members will discuss the central bank's 2005 business plan on Feb. 24, which needs approval from the assembly.
The dollar fell the most in more than four months against the yen, and plunged against the euro and the won, on concern China, Japan and Taiwan also plan to diversify their assets. The Bank of Korea wants to increase returns on reserves, equivalent to 29 percent of gross domestic product at the end of 2004, because a slump in the dollar is eroding their value.
``The foreign currency reserve is now a problem for the central bank, compared with the size of the nation's economy,'' said Yi Hyo Keun, a senior economist at Daewoo Securities Co. in Seoul. ``The dollar's ongoing weakness is adding pressure for it to find out measures to increase returns.''
South Korea's won rose the most out of 17 of the world's major currencies including the New Zealand dollar and the Japanese yen today after an earlier report that the Bank of Korea plans to diversify its reserves.
The won soared 1.7 percent to 1,006.10 against the dollar as of 4 p.m. local time, its largest advance since April 6, 2001, according to Seoul Money Brokerage Services Ltd. It was the strongest close since Nov. 14, 1997. The won gained 13 percent last year against dollar.
Investments
The central bank plans to expand investments in higher yielding products by diversifying investment targets to Canadian dollar-denominated and Australian-dollar denominated assets which typically carry higher interest rates, the 12-page briefing document said.
The Canadian dollar has declined 2 percent against the dollar this year, while the Australian dollar gained 1.7 percent, according to Bloomberg Analytics.
The country's foreign currency reserves are currently invested mainly in assets denominated in U.S. dollars, euros, Japanese yen, and British pounds, it said.
Reduce Holdings
Goldman Sachs Group Inc. earlier this month said Asian central banks will probably reduce the amount of dollars they hold as foreign-exchange reserves, joining Merrill Lynch & Co. and HSBC Holdings Plc in predicting the U.S. currency will decline for a fourth year.
``You simply don't want to hold all your assets in a currency that's going to be weakening for the foreseeable future,'' Thomas Stolper, a currency strategist at Goldman in London, said in an interview today. ``Changes to central bank reserves are going to be a negative factor for the dollar.''
Central banks, including the People's Bank of China and the Bank of Korea, will lift the portion of euros and yen in their reserves, Stolper said.
Of the three most-traded currencies, the share held in euros will rise to 32 percent from 22 percent, he estimates. Federal Reserve Chairman Alan Greenspan said in a Feb 4 speech in London that purchases from Asian investors are helping support the dollar.
Korean investors, including the Bank of Korea, held $69 billion in Treasuries as of December, the most recent figures available, according to the Treasury Department. Japan, the largest, has $711.8 billion.
South Korea had $200 billion in foreign currency reserves as of Feb. 15, the world's fourth-largest holding after Japan, China and Taiwan. The country increased its foreign-currency reserves from $8.9 billion it held in 1997.
``The sheer size of Korea's reserves makes it unignorable,'' said Tetsu Aikawa, currency sales manager in Tokyo at UFJ Bank Ltd., a unit of Japan's fourth-largest lender. ``That revives the memory in people's minds how badly the dollar was sold when Russia said it was diversifying.''
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