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South Korea's central bank weighs purchase of yuan assets

By Li Xiang | China Daily | Updated: 2012-01-19 07:56

BEIJING - South Korea said on Wednesday that it might invest part of its $300 billion in foreign-exchange reserves in yuan-denominated assets, which analysts said was a sign of the growing global role of the Chinese currency.

Choo Heung-sik, director-general of the Bank of Korea's (BOK, the central bank) reserve management group, was quoted by Bloomberg News as saying that the investment was part of South Korea's plan to diversify its foreign reserves.

Choo said the investment would be made gradually and from a long-term perspective.

He added that the initial investment wouldn't be "big" and might start with Chinese government bonds.

South Korea thus becomes the second developed economy, after Japan, with plans to buy yuan-denominated assets with its foreign-exchange reserves and add the Chinese currency to its reserves.

"Compared with the US and Europe, which are faced with systemic financial risks, China's economic growth remains robust and yuan-denominated assets are still attractive products for investment by foreign governments," said Guo Tianyong, director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics.

The BOK obtained a Qualified Foreign Institutional Investor (QFII) license in late December and has gained the approval of its counterpart, the People's Bank of China, to buy bonds, Choo was quoted by Bloomberg as saying.

The National Pension Service, the largest investor in South Korea, recently said that it received approval from China to invest in the Chinese securities market. Korea Investment Corp, the country's sovereign wealth fund, also said that it had received a QFII license.

Last month, Japanese Prime Minister Yoshihiko Noda announced plans during his visit to China to buy Chinese government bonds. Media reports said that the investment might be worth about $10 billion.

Japan's investment would be the first time that a developed economy used its foreign reserves to buy yuan-denominated assets.

Analysts said that Japan's move represented a significant step for the internationalization of the yuan, transforming it from a trade settlement currency to a reserve unit.

Chen Zhiwu, economics professor at Yale University, said that the purchase of Chinese government bonds by Japan and South Korea reflected China's increasing investment and trade relationships with the two countries.

However, Chen said, "the increasing foreign purchase of the yuan-denominated assets could put a burden on China's own huge foreign reserves.

"So it is unlikely for the yuan to become a true global reserve currency as long as China's trade surplus remains high."

China Daily

(China Daily 01/19/2012 page13)

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