South Korea will begin accepting registrations from foreign investors to trade the won onshore, taking its first step to open up its currency market to global traders.
The government will take applications starting Wednesday from foreign financial institutions that are willing to trade the onshore won using the local interbank foreign-exchange market, the finance ministry said in a statement. About 30 foreign firms expressed interest in participating in the onshore foreign exchange market in a preliminary survey, according to the statement.
The move is part of efforts by South Korean authorities to give foreign investors more access to its markets, which have been tightly restricted after fund outflows in past financial crises caused turmoil in the domestic economy. The step will bring Korea closer to satisfying market opening requests by global indexes such as FTSE Russell’s World Government Bond Index, inclusion in which will likely pave the way for tens of billions of dollars of inflows.
“The move, as part of the government’s initiative to improve the market structure, is expected to increase trading volume and boost liquidity in the market,” said Moon Junghiu, economist at KB Kookmin Bank. “But on the other hand, there is a bit of concern as we have no idea at this point what type of funds these foreign institutions will be.”
As part of those moves on the currency side, the government has said it will extend onshore trading hours to 2 a.m. starting July 2024 before ultimately allowing 24-hour trading.
For now, the 9 a.m.-3:30 p.m. trading window for the onshore won will stay as the government continues to monitor how well Korean financial firms cope with the changes. Offshore trading of the currency will also remain banned.
Once registered, foreign investors will be able to trade the won spot and FX swaps directly using the local interbank system from January, though for the first six months it will be a pilot program, during which authorities will monitor markets closely and take steps if needed.
The won is trading within a narrow range around 1,354 per dollar on Wednesday, after the announcement.
--With assistance from Shinhye Kang.
