The International Monetary Fund (IMF) has issued an authoritative interpretation confirming that gold produced domestically can be included in foreign exchange reserves, as the Bank of Korea (BOK) prepares to resume gold purchases after a 13-year hiatus. The IMF stated that regardless of the currency used for settlement, gold meeting reserve asset criteria and the required purity standards can be classified as “monetary gold” and included in reserve assets.
The core principle of foreign exchange reserves, as defined by the IMF, is that they are liquid assets held by monetary authorities that can be immediately deployed for external payments when needed. Unlike other foreign currency assets, gold is a physical asset, but it can be recognized as a reserve asset because it is traded internationally. For inclusion in foreign exchange reserves, it must be classified as monetary gold.
This authoritative interpretation appears to directly address statistical controversies that have surrounded the BOK’s gold purchasing approach. Market participants had raised concerns that it was unclear whether gold purchased by the BOK in South Korean won and stored domestically would be recognized as a reserve asset under IMF statistics. The issue stemmed from the IMF’s definition of reserve assets as “assets that monetary authorities can immediately use for external payments,” making the classification of domestically held gold a point of contention.
Regarding this matter, the IMF stated: “Gold acquired through domestic purchases can be classified as ‘monetary gold’ and included in reserve assets, provided it meets reserve asset criteria and the necessary purity standards, regardless of the currency used for settlement.” The IMF added that gold with a purity of 99.5% or higher can be classified as monetary gold, with no need for additional refining to London Good Delivery (LGD) standards.
The BOK plans to establish a cooperative framework enabling domestically produced gold to be reflected in foreign exchange reserve holdings and proceed with purchases. The structure involves the Korea Exchange, the Korea Securities Depository, and domestic gold producers, with the BOK purchasing gold that domestic companies intend to export overseas. Transactions will utilize negotiated block trading on the Korea Exchange’s gold market, with the Korea Securities Depository responsible for settlement and custody.
However, actual purchases will only occur when producers finalize volumes and pricing and submit purchase requests to the BOK. As a result, the first transaction could potentially be delayed until year-end or next year. While South Korea’s annual domestic gold production ranges from 40 to 45 tons, export-bound volumes are only 4 to 5 tons, leading to observations that the effect on expanding foreign exchange reserves may be limited.
Meanwhile, the BOK is pursuing gold purchases through both physical and product-based channels. The central bank has also been purchasing gold exchange-traded funds (ETFs) since the second quarter. While ETFs are classified as securities, the BOK’s strategy suggests that purchasing products backed by domestically produced gold can help increase physical gold holdings, thereby contributing to the diversification of foreign exchange reserve composition.
The following table summarizes the IMF’s classification criteria and the BOK’s purchasing structure:
CategoryKey DetailsIMF Classification RequirementsCan be classified as “monetary gold” if reserve asset criteria and required purity standards are metPurity Standard99.5% or higher qualifies as monetary gold; no additional refining to LGD standards requiredBOK Purchase MethodDomestic gold producers supply export-bound volumes; utilizes negotiated block trading on the Korea Exchange gold marketSettlement & CustodyKorea Securities Depository handles settlement and custodyTiming VariablesFirst transaction may be delayed to year-end or next year as purchase requests require finalized volumes and pricing
Note: Some figures are based on information in the article.
While how this IMF interpretation will be reflected in actual foreign exchange reserve calculations depends on detailed procedures, it is significant in that it provides an answer to the question of whether gold produced and acquired domestically can be classified as a reserve asset (monetary gold). Foreign exchange reserves are an indicator directly linked to a nation’s external payment capacity, and greater clarity on the scope of eligible constituent assets can enhance statistical consistency and credibility.
Market observers see the BOK’s resumption of gold purchases as a potential signal of portfolio diversification for foreign exchange reserves. However, given that export-bound volumes may be limited to 4 to 5 tons relative to domestic production, some view the short-term “scale expansion” effect as potentially constrained. Conversely, if channels linked to increasing physical holdings become firmly established—similar to the gold ETFs the BOK has been purchasing since the second quarter—there remains potential to drive compositional changes over the medium to long term.
Notably, this criteria clarification may help alleviate concerns that the transaction structure of “gold purchased domestically in won” could pose a statistical obstacle. With confirmation that the threshold for inclusion in foreign exchange reserves depends on purity requirements and reserve asset classification criteria rather than settlement currency, the key question now is whether the BOK’s purchases will proceed as planned.