Foreign investors will soon be able to hold and transfer South Korean won and settle domestic securities without needing local accounts, as the government prepares to launch a pilot program next month. This initiative aims to alleviate inconveniences in foreign exchange and securities transactions ahead of South Korea's inclusion in the Morgan Stanley Capital International (MSCI) developed markets index.
On August 14, the Ministry of Economy and Finance held a meeting at the Bank Hall in Seoul, chaired by Deputy Minister Heo Jang, to review the progress of the Foreign Exchange Soundness Council and the task force for MSCI index inclusion. Attendees included representatives from the Financial Services Commission, the Bank of Korea, the Financial Supervisory Service, the Korea Exchange, and the Korea Securities Depository.
The government has completed 30 out of 39 tasks outlined in the MSCI index inclusion roadmap announced in January, which accounts for 77% of the total. It plans to implement three additional tasks by the end of the year.
As part of this effort, the 'Bank of Korea Won International Payment Network' will be established, allowing foreign investors to hold or transfer won through overseas financial institutions without opening accounts in South Korea. The won held abroad can also be used for settling domestic stocks and bonds.
To facilitate the registration process and requirements for overseas financial institutions, the government will revise foreign exchange transaction regulations and guidelines for foreign financial institutions between August and September. The official implementation is set for 2027 following the pilot program next month.
Additionally, guidelines for electronic foreign exchange (e-FX) trading, which provides price information electronically and utilizes automated order execution, will be distributed this month. These guidelines will include standards for transaction system stability, market volatility response, and internal control criteria. A checklist will be provided for banks and securities firms to self-assess compliance, which is expected to reduce the burden of nighttime staffing and costs for financial institutions.
The liquidity burden in won during the securities settlement process for financial institutions will also be eased. Starting in September, the Korea Securities Depository will allow settlement facilitation fees, currently payable only in cash, to be paid in stocks and bonds.
In October, securities expected to be received in the market will also be recognized as collateral. Financial institutions will be able to acquire securities without separately paying settlement facilitation fees, which is anticipated to alleviate the burden of securing won during trading hours.
Meanwhile, the 24-hour operation of the foreign exchange market, which began on July 6, has contributed to an increase in trading volume. The average daily trading volume of the won-dollar spot market in the interbank market rose by 10.1% from $17.39 billion in the first half of the year to $19.14 billion following the extension of operating hours.
However, due to time differences with overseas markets and the early stage of the system's implementation, late-night trading has been gradually increasing. The government plans to give more weight to late-night trading volumes in the selection process for leading banks in the won-dollar market to encourage domestic financial institutions to participate in nighttime trading.
Participants also discussed the recent surge in domestic stock prices and its impact on external soundness indicators of the economy. Deputy Minister Heo noted that while the KOSPI index rose by 68% from 5,052 at the end of the first quarter to 8,476 at the end of the second quarter, leading to a significant decrease in the net external financial assets, this does not indicate a deterioration in the external soundness of the economy.
* This article has been translated by AI.
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