South Korea to ease won access, aims for freely convertible currency
A more freely convertible won would deepen offshore liquidity and give foreign investors and corporates cheaper, easier access to Korean assets and hedging tools, a modest positive for capital inflows over time. The shift toward TWAP based benchmark rates and round the clock electronic trading should reduce FX volatility transmission into the domestic economy and lower transaction costs for exporters and importers alike. Because the reforms are structural and phased in through measures such as the August electronic guidelines, near term market impact should be limited, with the bigger effect building as offshore settlement infrastructure matures. Currency traders are likely to view the plan as a long run positive for won stability and Korea's capital market standing rather than a catalyst for immediate price action.
--- Seoul is dismantling the structural barriers keeping the won largely trapped inside its own borders.
Summary:
- South Korea's finance ministry unveiled a road map on Sunday aimed at making the won a freely convertible currency, according to Yonhap
- The plan centres on building offshore won transaction and settlement systems and removing institutional restrictions on the currency's use
- The ministry said internationalisation is warranted given the country's economic fundamentals and the maturity of its capital markets
- Officials pointed to structural hurdles including domestic bank account requirements and prior reporting rules for certain capital transactions as key barriers to fix
- Planned changes include switching the benchmark exchange rate from the market average rate to a time weighted average price, and introducing electronic FX guidelines in August for automated overnight trading
- The government also plans incentives, including expanded trade insurance coverage, to encourage Korean firms to settle international trade in won
South Korea's finance ministry said Sunday it will step up efforts to widen access to the Korean won, setting a goal of turning it into a freely convertible currency available to foreign users with no barriers outside the country. The Ministry of Finance and Economy framed the plan as a road map for the won's internationalisation, built around establishing offshore transaction and settlement systems and stripping away institutional restrictions that currently limit the currency's use abroad.
The government argued the push is timely given South Korea's economic fundamentals and the growing sophistication of its capital markets. Officials said a more internationalised won should eventually support capital market development, lower transaction costs for businesses and reduce the impact of exchange rate swings on the real economy, while also cutting the cost of raising funds, converting currencies and hedging FX risk for Korean firms.
The finance ministry noted that even after South Korea launched a 24 hour foreign exchange market earlier this month, foreign users still face structural obstacles to freely obtaining and using won overseas because offshore infrastructure remains underdeveloped. Among the hurdles cited were requirements for foreigners to open accounts at domestic foreign exchange banks to settle won transactions, along with prior reporting obligations for certain capital transactions.
To address these gaps, the government plans to revise how the benchmark exchange rate used for accounting, taxation and transactions is calculated, replacing the current market average rate with a time weighted average price to bring it in line with international standards. Seoul will also roll out electronic foreign exchange guidelines in August, enabling automated overnight trading without staff on duty, and will allow foreigners to settle won transactions through offshore settlement institutions rather than requiring domestic bank accounts.
The plan further includes incentives, such as expanded trade insurance limits, to encourage Korean companies to use the won more widely in international trade. The ministry said it intends to build a multi layered risk management system by securing external financial safety nets and coordinating foreign exchange policy implementation as the reforms proceed.
This article was written by Eamonn Sheridan at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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