Problems with the foreign exchange reserves of central banks and the Bank of Kor

- Problems with the foreign exchange reserves of central banks and the Bank of Korea seeking gold instead of the dollar -

According to the WSJ and FT, the World Gold Association (WGC) surveyed central bank reserve managers around the world and found that about 30% said they planned to increase their own gold reserves by 2025.

In fact, gold purchased by central banks in each country is increasing every year to 1,082 tons in 2022 and 1,037 tons in 2023.

In addition, as of April 3, 2024, "WGC" has the following gold reserves (Tones) of central banks in each country as of the fourth quarter of 2023.

8,133.46 tons in the United States, 3,352.65 tons in Germany, 2,451.84 tons in Italy, 2,332.74 tons in Russia, 2,235.39 tons in China, 1,040.00 tons in Switzerland, 845.97 tons in Japan, 803.58 tons in India and 612.45 tons in the Netherlands.

Central banks in each country are buying gold because of "de-dollarization," "geopolitical risks," and "inflation hedging," which have been considered safe assets in foreign exchange reserves, and are turning to another safe asset, gold.

But the Bank of Korea (BOK) made up just "104.45 tons" of its foreign reserves in May 2024, accounting for "a mere "1.2 percent" of its total foreign reserves of $4.79 billion.

For reference, gold accounts for 75.8% in the United States, 71.7% in Germany, 67.8% in the Netherlands, 67.4% in Italy, 62.2% in France, and 28.6% in the European Central Bank.

Not only that.

Recently, the Bank of Korea's foreign exchange reserves have continued to fall sharply.

The "foreign exchange reserves" stood at "$413.6 billion" in April 2024, down $5.99 billion (about 8.14 trillion won) from the end of March 2024, according to the Bank of Korea data.

Also, the BOK's foreign exchange reserves stood at $412.83 billion in May 2024, down "$430 million" from the end of April ($413.6 billion).

In other words, the Bank of Korea's foreign exchange reserves fell "$6.56 billion (approximately KRW 9 trillion)" in two months.

So let's look at the composition of the Bank of Korea's foreign exchange reserves in May 2024.

The Bank of Korea's foreign exchange reserves in May 2024 consist of "370.41 billion dollars in securities (89.7 percent)," "185.0 billion dollars in deposits (4.5 percent)," "SDR 14.75 billion dollars (3.6 percent)," "gold 4.79 billion dollars (1.2 percent)" and "IMF position 4.38 billion dollars (1.1 percent)."

Looking at the foreign exchange reserves above, securities are "89.7%", and the amount that can be used as cash in an emergency is only "10.3%", including deposits.

It's a really big problem, and if there is a financial crisis in Korea, it will be helpless.

Then, let's look at the "Asset Portfolio" of the Bank of Korea's foreign exchange reserves one by one.

1. securities

The problematic part here is "370.41 billion dollars (89.7%) in securities," which accounts for the largest portion of the Bank of Korea's foreign exchange reserves.

Securities refer to reliable foreign bonds (such as government bonds, state government bonds, corporate bonds, and asset-backed securities (ABS, covered bonds) that are exchangeable, liquidity, marketable, and profitable.

However, the Bank of Korea defines securities as follows.

In other words, "national bonds, government bond bonds, corporate bonds, asset-backed securities (MBS, covered bonds), etc." are referred to as securities.

It feels like something's been turned around.

Because MBS (Mortgage-Backed Securities) is a type of asset-backed securities (ABS).

For example, it is as follows.

Asset-backed securities (ABS) are securities issued on the basis of all assets, including foreign reliable loan securities, beneficiary securities, real estate, and bonds, and there are bonds, stocks, or beneficiary securities.

In other words, ABS securitizes assets held as collateral and aims to generate cash flows tied to assets by asset holders.

In addition, Mortgage-Backed Securities (MBS) is a type of asset-backed securities (ABS), where the bank that made the mortgage loan re-issues the bond as collateral with the mortgage to secure liquidity.

In addition, "Covered Bond" refers to bonds that issue high-quality assets such as loan bonds, government bonds, and real estate as collateral, and is similar to asset-backed securities (ABS).

Therefore, the Bank of Korea should use the term "asset-backed securities (MBS, covered bonds)" as "asset-backed securities (ABS, MBS, covered bonds" in professional terms.

2. government bonds

Government bonds are bonds issued by central banks in each country, and the most preferred government bonds are those issued by the U.S. Fed.

For reference, the most recent data released by the Fed is for April 2024.

The data showed the Bank of Korea had "US$119.9 billion" in government bonds at the end of April 2024.

Then, in the Bank of Korea's $370.41 billion (89.7%), which accounts for the largest portion of foreign exchange reserves in May 2024, "$119.9 billion" is the U.S. Fed's government bonds, and the remaining "$251.41 billion" is securities such as government bond, corporate bond, and asset-backed securities.

However, we do not know in detail what and how much we have for securities such as "government bonds, corporate bonds, asset-backed securities" worth "$250.51 billion".

And what I'm most concerned about is, right now, is there any country on the planet that has "370.41 billion dollars (or 89.7%) of its foreign exchange reserves.

So I posted a post suggesting a parliamentary investigation into the Bank of Korea's foreign exchange reserves from 2019.

But no one is doing it.

But