Foreigners will soon be able to trade the Korean won at overseas banks. The government aims to lower barriers for foreign investment in won-denominated assets, thereby enhancing potential growth rates.
On July 19, the government announced a "Roadmap for the Internationalization of the Won." This initiative seeks to transform the won from a regulated currency into a freely exchangeable currency, allowing foreigners to trade it without restrictions abroad.
Previously, the government initiated a 24-hour foreign exchange market to increase foreign trading of the won. The new measures will eliminate restrictions on transactions conducted by foreigners at offshore won payment institutions. This means that U.S. citizens can open won accounts at banks in the U.S. to conduct transactions. The Bank of Korea plans to establish an "offshore won payment network" to facilitate these transactions, which will operate 24 hours a day starting in January.
Lee Hyung-ryul, Director of the International Finance Bureau at the Ministry of Finance, explained in a briefing on July 16, "Offshore won payment institutions will operate on a registration basis rather than requiring licenses. This means that Americans can open won accounts at banks in New York."
The new measures are expected to lift restrictions on foreign investments in won-denominated stocks and government bonds. Lee emphasized, "Removing these restrictions is key to the internationalization of the won."
To address potential liquidity shortages during nighttime hours, the government plans to allow foreign financial institutions to obtain the necessary won for transactions without restrictions through temporary borrowing.
Launch of Offshore Won Payment Network
To ease foreign exchange transaction regulations, the government will more than double the pre-reporting threshold for capital transactions, including won loans for foreigners. It is also considering increasing the self-limits for banks transferring funds from domestic to offshore accounts. Previously, these transactions required pre-reporting, but the government is contemplating a shift to a post-reporting system.
Regulatory easing for financial institutions will include improving the convenience of offshore account operations and allowing third-party foreign exchange transactions by foreign financial companies.
The plan also includes establishing a digital asset payment infrastructure. This will provide a legal basis for the issuance, circulation, and trading of won stablecoins and regulate cross-border transactions. The government aims to amend the Foreign Exchange Transaction Act and other laws in line with the establishment of a Digital Asset Basic Law next year.
The Bank of Korea will also conduct a pilot project for tokenizing government bonds linked to a central bank digital currency (CBDC) next year. Additionally, it will formally join Project Agora, which aims to build a digital cross-border payment system based on blockchain and CBDC.
Revisions to Foreign Investment in KOSPI and Korean Bonds
The government plans to enhance access for foreign investors to the domestic securities market and increase incentives for won-denominated transactions. Among the 25 tasks outlined in the Morgan Stanley Capital International (MSCI) roadmap for capital markets, 22 bureaucratic tasks will be continuously monitored and improved to ensure institutional stability, while the remaining three tasks will be implemented without delay.
In particular, the government will improve financial institution infrastructure for automating securities trading and settlement, enhance investor registration, and expand English disclosures for all KOSPI-listed companies by March next year.
To increase the utility of won held by foreigners, the government is also considering measures to allow offshore securities lending. This aims to encourage foreign investment in government bonds by permitting bond lending transactions among foreigners within the international depository system.
Furthermore, the government will create an environment conducive to investment by allowing participation in the repurchase agreement (RP) market for foreign central banks and international financial organizations.
Measures to enhance the convenience of won payments abroad will also be included. The government plans to expand QR payment integration with key tourist countries. A service was launched in Indonesia in April, and a memorandum of understanding (MOU) was signed with India the same month. Future plans include increasing QR payment integration with Singapore and Thailand.
Expansion of Won Liquidity Supply
The government will establish a liquidity supply system within the offshore won payment system and develop measures to improve won liquidity for securities and trade transactions.
To secure private liquidity, regulations will be established to allow foreign exchange banks to provide won liquidity smoothly to foreign financial institutions participating in the offshore payment system. Foreign financial institutions will be able to obtain the necessary won for transactions without restrictions through temporary borrowing from foreign exchange banks.
Additionally, the Bank of Korea will consider increasing liquidity during nighttime hours based on demand within the offshore payment network. Until the offshore won payment network system is upgraded, the government will explore options for providing liquidity.
Currently, the Bank of Korea supplies won to the central bank of China through a currency swap and plans to apply this method to other countries as well.
Lee stated, "We aim to encourage foreigners to hold and freely utilize the won without hesitation, thereby promoting investment in won-denominated assets. This policy shift signifies a transition in foreign exchange policy that can enhance potential growth rates."
* This article has been translated by AI.
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