South Korean Prime Minister Lee Hae-chan said yesterday it was time to consider how to manage the nation's bloated foreign exchange reserves as a central bank official suggested sinking billions of dollars in high-yield investments.
South Korea's has more than US$200 billion in foreign exchange reserves, the world's fourth largest after Japan, China and Taiwan.
Lee said the amount was expected to hit US$220-230 billion, well above the "appropriate level" of US$150-170 billion, by the end of this year.
"The forex reserves are about US$30-50 billion above the desirable level which can produce negative side-effects," Lee said in a speech at a seminar. "It's time to consider how to manage this in the global market."
Lee Seong-tae, deputy governor of the Bank of Korea, made similar comments at a separate economics seminar.
"If the foreign exchange reserves ... exceed the appropriate level, an excessive part can be aggressively invested in the global financial markets to boost yields," the deputy central bank chief said.
The central bank said last month that it would diversify its holdings into high-yielding non-government debt paper such as company bonds or other private asset-backed securities. After the remarks sparked heavy pressure on the dollar, the Bank of Korea flatly denied planning to sell dollar-denominated assets in response to short-term market movements. Currently, it invests heavily in state bonds, mainly US government bonds or Treasuries.
Prime Minister Lee said he expected the nation's exports to reach some US$285 billion this year, resulting in a trade surplus of more than US$20 billion.
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