The Bank of Korea said its decision to stop publishing global rankings of foreign exchange reserves starting this month was based on a judgment that the rankings have no bearing on external soundness.
In a press reference note titled "Explanation Regarding Foreign Exchange Reserve Rankings" released on the 3rd, the central bank said international rankings of foreign exchange reserves are "a simple comparative statistic that does not control at all for differences in economic size or external positions across countries."
The BOK said the rankings have "little analytical value because they allow no inference about the extent to which reserves can serve as a buffer against potential shocks such as a foreign currency liquidity squeeze." Russia, for example, holds more foreign exchange reserves than South Korea, but that does not mean its external soundness is stronger.
The central bank added that rankings "can fluctuate considerably regardless of changes in Korea's external conditions, depending on the market intervention stance of comparison countries and sharp swings in the market value of specific asset classes such as gold."
The BOK is understood to have internally reviewed the practical value of disclosure after swings in the rankings widened this year. South Korea held ninth place through the end of last year but slipped to 10th in January and 12th in February. It fell as low as 13th at the end of May before climbing three notches back to 10th at the end of June.
"Korea's foreign exchange soundness is holding at a stable and sound level, and no major changes are taking place in the external sector," the BOK said. "Even so, as the reserve rankings shifted frequently this year because of factors such as gold price movements, interpretations detached from external sector fundamentals appeared to be occurring repeatedly, and we judged that this needed to be corrected."
The central bank also said it is "not true that the shift to non-disclosure was intended to hide information unfavorable to the foreign exchange authorities," adding that reserve rankings are "already available on the websites of the International Monetary Fund and individual central banks, and statistics users can look them up freely."
Criticism is nonetheless likely to persist over the fact that the disclosure was halted without any advance explanation. When the BOK removed the item, it did not announce the change or its rationale through a separate explanatory document or briefing. Only after the move drew controversy did it belatedly state its position in the form of a press reference note.
