BOK denies report on OTC purchase of yuan bonds

South Korea’s central bank has not submitted an application to its Chinese counterpart to get approval for investment in yuan bonds traded on China’s over-the-counter market, a bank official said Thursday.

The remarks came after a local daily reported Thursday that the Bank of Korea is preparing to invest $2 billion in unlisted yuan bonds as part of efforts to diversify its foreign exchange reserves.

“The BOK has neither applied to the People’s Bank of China for buying OTC-traded yuan bonds nor contacted officials from China’s central bank,” Hong Taeg-ki, head of the BOK’s Reserve Management Group, told reporters, dismissing the report.

Currently, only the Hong Kong Monetary Authority is permitted to invest in China’s inter-bank bonds markets, according to the BOK.

But Hong declined to comment on whether the BOK has considered buying such yuan bonds or plans to do so, citing its policy on the management of the FX reserves.

His remarks came as South Korea’s holdings of a record $312.19 billion in FX reserves has raised the need to diversify the portfolio of its foreign exchange reserves.

In a related move, the BOK applied for qualified foreign institutional investor) status in February in an effort to prepare for investing in Chinese currency-denominated assets.

Under the QFII scheme, only approved foreign institutions are allowed to invest in China’s stock and bond markets within quotas set by Beijing’s financial authorities.

A BOK official said as it usually takes one or two years to get approval, the BOK may be able to receive the green light as early as in the second half of next year.

The BOK has been making efforts to diversify its foreign exchange reserves by curtailing the portion of U.S. dollar-denominated assets.

The weight of the BOK’s dollar holdings declined for the second straight year in 2009, but it rebounded last year, the first time since 2007 when the BOK began to unveil details of its foreign assets by currency.

The BOK’s dollar holdings came to 63.7 percent of its foreign currency assets as of end-2010, up 0.6 percent from a year earlier. 

(Yonhap News)