Gold and silver products are displayed at a jewelry shop in Jongno-gu, Seoul. Seoul Economic Daily DB
As the Bank of Korea (BOK) has decided to purchase gold for the first time in 13 years, the International Monetary Fund (IMF) has issued an official interpretation stating that “domestically produced gold” can also be included in foreign exchange reserves.
In a statement to Seoul Economic Daily on the 6th, the IMF said, “Gold acquired through domestic purchases can be classified as ‘monetary gold’ and included in reserve assets, regardless of the currency used for settlement, provided it meets the reserve asset criteria and the required purity standards.” The IMF explained that gold with a purity of 99.5% or higher can be classified as monetary gold, and that there is no need for additional refining up to the London Good Delivery (LGD) level.
Until now, the market has seen some controversy over whether gold purchased domestically with Korean won and stored within the country could be included as reserve assets under IMF statistics. This was because the IMF had defined reserve assets as those that a monetary authority can immediately use for external payments.
The BOK has established a cooperative framework with the Korea Exchange, the Korea Securities Depository, and domestic gold producers, and has decided to purchase gold that domestic companies plan to export overseas. It will utilize the negotiated block trading of the Korea Exchange’s gold market, with the Korea Securities Depository handling settlement and custody.
However, actual transactions are only possible once companies finalize the volume and request purchases. As a result, the first purchase may be pushed to the end of this year or next year. Domestic gold production stands at 40-45 tons per year, and the volume slated for export is only 4-5 tons, meaning the effect on boosting foreign exchange reserves is limited.
Meanwhile, the BOK has also been purchasing gold exchange-traded funds (ETFs) since the second quarter. ETFs are classified as securities, but actually purchasing domestically produced gold would increase physical gold holdings.