Bank of Korea to invest in renminbi in 2012

The Bank of Korea’s head of reserve management Heung Sik Choo says that the first investments in Chinese renminbi will be made this year.

In an interview in the book RBS Reserve Management Trends 2012, to be published by Central Banking Publications today, the head of reserve management at the central bank, Heung Sik Choo, says: “We will start to invest in the renminbi this year. We will invest in bonds first and equities later.”

The move is part of a shift to look at emerging market currencies, not traditionally the preserve of reserve managers, Choo explains. “In terms of asset classes, we are pretty much diversified compared to other central banks,” he says, adding: “In the long term, we will probably try to diversify into emerging market countries and their currencies, like the renminbi.”

The Bank of Korea has noted the changing place of China’s currency in the world economy, and is adjusting its long-term reserve management strategy accordingly. “The renminbi has the potential to become one of the major reserve currencies in the long term. I am not sure how long this long term is: 5, 10, maybe 20 years,” says Choo.

“However, because we have this long-term view, we applied and got the approval to obtain qualified foreign institutional investor (QFII) status in early 2012, and also received a quota of $300 million. We also obtained the approval to join the interbank bond market,” he adds.

Choo also discusses the lessons Korea learned from the Asian financial crisis in the 1990s, and gives insights into how the central bank has utilised its resources to smooth the country’s experience of the recent global financial crisis.

Choo says Europe’s sovereign debt crisis has had little impact on the Bank of Korea’s portfolio. Due to the “very long” investment horizon and accepting the responsibility for “supporting the strength and stability of international financial markets”, Choo says the central bank’s sovereign debt portfolio “has not changed very much” since the crisis began.

Choo is head of the reserve management group at the Bank of Korea. As a deputy governor-level officer of the central bank, he is a member of the executive group and is responsible for the overall reserve management.

RBS Reserve Management Trends 2012 is sponsored by The Royal Bank of Scotland and is the eighth in a series of annual reviews of reserve management.


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