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South Korea Dollar Reserves Fall to Smallest Share Since ’07

Bank of Korea Pares Dollar Holding Ratio to Lowest Since 2007
Pedestrians walk in front of the Bank of Korea headquarters in Seoul. Photographer: Jean Chung/Bloomberg

The share of U.S. dollars in South Korea’s $327 billion worth of foreign-exchange reserves fell last year to the lowest level since the country started disclosing the contents of the portfolio in 2007.

Dollar holdings dropped to 57.3 percent of reserves from 60.5 percent in 2011, the Bank of Korea said in its annual report for 2012 released today. The ratio has fallen four out of five years since 2007, when it was 64.6 percent.

The decline in dollar investments by Asia’s fourth-largest economy underscores a shift among reserve managers to diversify assets, with China’s yuan and gold among the beneficiaries. The reserves, the nation’s major safeguard against a foreign currency crisis, rose from $306 billion at the end of 2011, a gain of 6.9 percent.

“The dollar share fell last year as we bought gold and Chinese assets while the euro and pound appreciated,” the central bank said in a statement.

The central bank boosted the proportion of equity investments to 5.7 percent last year from 5.4 percent in 2011, it said. Holdings of foreign government bonds rose to 38 percent from 36.8 percent, the BOK said.

South Korea now holds government bonds issued by countries including the U.S., Japan, Canada, and Germany, Kang Sung Kyung, a director at the bank’s Reserve Management Group, told reporters today in Seoul.

“Our dollar holding share is not much different from the levels at other central banks,” Kang said.

Chinese Bonds

The Korean central bank began to buy Chinese bonds and stocks in 2012 as part of plans to diversify its reserves.

The BOK received approval from the People’s Bank of China to buy bonds and obtained a license to invest in Chinese stocks as a Qualified Foreign Institutional Investor, or QFII, last year.

The BOK has used a “considerable amount” of its 20 billion yuan ($3.2 billion) limit for purchases of Chinese government and central bank debt, Choo Heung Sik, head of the South Korean central bank’s reserve management group, said in an interview last November. In addition, a $300 million allocation for Chinese stocks has been fully utilized, he said.

South Korea has also boosted its gold holdings. In February, the country added 20 metric tons, a rise of 24 percent, for a total of 104.4 tons.

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