South Korea Plans to Start Won-Yuan Direct Trading in December

South Korea will start direct trading between the won and the yuan in Seoul from December and is considering selling sovereign debt denominated in the Chinese currency for the first time.

About 10 banks will be appointed next month as market makers for the currency pair, according to a joint e-mailed statement by the government and the central bank. To encourage participation, the lenders may be offered a reduced levy on their foreign-currency borrowings on a temporary basis.

“South Korea has sufficient potential to be an offshore yuan hub, but needs to build more infrastructure,” the statement said. “Increased yuan transactions in South Korea will lead to more business opportunities for local financial institutions.”

Today’s release follows a July agreement between South Korea’s President Park Geun Hye and Chinese President Xi Jinping to deepen economic ties between the two nations. China is South Korea’s biggest export destination and a Society for Worldwide International Financial Telecommunications report this week showed the yuan accounted for a record 1.72 percent of global payments last month.

China started direct trading between the yuan and the Singapore dollar this week, after last month making the euro exchangeable for its currency in Shanghai. Similar links exist for the U.S., Australian and New Zealand dollars, the British pound and Japan’s yen.

Yuan Bonds

The U.K. became the first country beyond China’s borders to sell yuan-denominated government debt this month and the 3 billion yuan ($490 million) of notes due October 2017 were sold to yield 2.7 percent, according to data compiled by Bloomberg.

Similar-maturity local-currency bonds issued by South Korea’s government, which has previously sold foreign-currency debt denominated in dollars and euros, yielded 2.14 percent as of 2:30 p.m. in Seoul, Korea Exchange prices show. Residents’ bank savings denominated in yuan tripled this year and were equivalent to about $20 billion at the end of September, the central bank reported Oct. 8.

The yuan accounted for 1.2 percent of trade settlements between South Korea and China at the start of the year, today’s statement said, adding that the government plans to raise this proportion to more than 20 percent in the “medium to long term.” China accounted for 29 percent of Korean exports in the first 20 days of September, official data show.

The government will ease limits on local mutual funds’ investments in Chinese government debt and support sales of yuan-denominated bonds by Korean companies, today’s statement said.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE