Forex Reserve Management
The South Korean government voted for an amendment to the Korea Investment Corporation (KIC) Act on November 15.
According to the revision, the government can collect its foreign exchange reserves deposited in the KIC for forex market protection once at least two of Moody’s, S&P and Fitch lower their credit ratings applied to South Korea by a notch or more. At present, this can be done only when the sovereign credit rating is lowered to a junk level.
In addition, the government can do so when the country’s forex reserves decrease by at least 5%, instead of 10%, month on month for two months in a row. The revised act also stipulates that the early collection by the government can be carried out in the case of a significant and drastic change in domestic and international economic conditions.
The KIC is currently running approximately US$100 billion as its foreign exchange assets, which is divided into about US$70 billion entrusted by the South Korean government, US$22.5 billion entrusted by the Bank of Korea and some profits obtained from the management of the money. The amended act is scheduled to be put into effect within this month.