South Korea's central bank will not intervene any further in foreign exchange markets, the governor of the Bank of Korea said on Wednesday in comments likely to unsettle financial markets.
“I believe that we now have sufficient reserves to secure our sovereign credibility, so I do not anticipate increasing the amount of foreign reserves further,” Park Seung told the Financial Times. South Korea's foreign currency reserves stand at $206bn the fourth largest in the world.
Mr Park said: “We now need to take more consideration of profitability, and I think we're at a stage where we need to manage our reserves in a more useful way.”
Although he made no explicit comment on the won, Mr Park's remarks imply that South Korea is now unwilling to undertake the intervention required to stem its currency's rise...
Mr Park said he did not envisage changing the currency mix of the reserves, about two-thirds of which is thought to be in dollar-denominated assets. In February the dollar recorded its biggest drop in five months when a Bank of Korea report said it would diversify its foreign exchange reserves.
With Japan, China and South Korea which together hold at least a third of the world's central bank foreign exchange reserves each likely to suffer if one moves first to lessen their exposure to the dollar, some economists believe there is scope for more regional co-operation.
Mr. Park also had a little advice for the US:
The US Treasury on Tuesday signalled that it expected China to revalue its currency within six months. Mr Park said: “I think that is China's job [but] China is smart enough to deal with this issue to help adjust the imbalances within the global economy and stabilise the regional economy.” Of greater concern were the US's current account and budget deficits, which Asian central banks have largely been funding. “They [the deficits] will aggravate the global imbalances and undermine global economic growth,” Mr Park said.
“I think there is a need for the US to dissolve these twin deficits for the benefit of the US economy, the world economy and the Korean economy.”