The Korean government announced a Won Internationalization Roadmap on the 19th, aiming to transform the Won into a freely tradable currency without time or location constraints. The initiative targets benefits for individuals, import-export companies, financial institutions, and foreign investors through unrestricted Won transactions. The roadmap represents a shift from the Won's current status as a regulated currency to a free-exchange currency, with the Ministry of Finance stating the goal is enabling foreigners to hold and use Won without hesitation or fear.
Government Outlines Four Core Policy Tasks for Won Internationalization
The government selected four core tasks in the roadmap announced on the 19th. The first task is building offshore Won trading infrastructure and reforming the foreign exchange system. The plan includes opening the foreign exchange market for 24 hours and establishing an offshore Won settlement system to enable foreigners to trade Won without time or location restrictions. The government will significantly ease regulations related to foreign Won transactions to improve convenience.
The second task focuses on expanding Won transaction demand by improving foreign access to Korea's capital market and providing incentives for using Won in trade settlements and current account transactions. The changes will enable import-export payments and QR code settlements without dollar conversion.
The third task addresses Won liquidity supply expansion by allowing foreign financial institutions to procure Won without limits through overdraft facilities. The Bank of Korea and government will review direct liquidity supply methods. The government plans to expand domestic foreign exchange banks' participation in custody business and promote Won trade finance to increase liquidity.
The fourth task establishes a multi-layered risk management system by strengthening external safety nets and advancing market stabilization policies to match the environmental changes from Won internationalization.
Individuals and Companies Gain Currency Exchange Cost Reductions
Individuals will benefit during overseas travel and investment through Won internationalization. Users can make payments abroad using QR codes from existing financial applications without currency exchange, eliminating advance exchange needs and reducing credit card payment fees. The 24-hour foreign exchange market operation enables immediate currency exchange at market rates during nighttime hours.
Previously, investing in US stocks at night required exchange at provisional rates higher than market rates, but now immediate exchange at market rates is possible without settlement procedures. Companies will reduce currency exchange costs and foreign exchange risks. Currently, companies incur costs when converting export proceeds to Won, and unavoidable changes in actual corporate income occur when exchange rates fluctuate after export contracts.
Through Won internationalization, if companies contract and receive export proceeds in Won, currency exchange costs will disappear and foreign exchange risks will decrease.
Foreign Investors Access 24-Hour Won Trading and Offshore Accounts
Foreign investors will be able to freely trade Won during their local business hours. The 24-hour foreign exchange market operation and offshore settlement capability eliminate time constraints, allowing Won exchange at any desired time. The inconvenience of opening separate Won accounts at Korean financial institutions will disappear.
Foreign investors will be able to open Won accounts at global banks in London and New York that they normally use, and borrow Won when needed to invest in the Korean stock market. Domestic financial institutions will see business opportunities expand. Korean institutions previously could only serve domestic customers due to low foreign access to Korea's foreign exchange market.
With Won internationalization, domestic institutions are expected to expand business based on their comparative advantage in Won-related operational capabilities. The development of various linked products is anticipated to enhance the competitiveness of Korea's financial industry.
Market Experts Support Direction While Noting Long-Term Effort Required
The financial market generally agrees with the direction of Won internationalization, viewing it as taking the first step requiring continued effort from both government and market participants. The goal cannot be achieved in the short term, requiring patience and continued changes from a long-term perspective. While immediate results may not be felt, measures to improve payment convenience and increase Won supply and demand are expected to be effective.
The overdraft regulation is evaluated as solving settlement time difference problems, and encouraging domestic foreign exchange banks to participate in custody business is seen as a plan to activate Won liquidity supply. A foreign bank representative stated the basic direction of Won internationalization is correct, noting it is not an immediate issue requiring government and market participants to continue supplementing and preparing. The representative highlighted measures to enhance payment convenience in foreign exchange operations, stating the roadmap has been released with much work remaining.
Cautious views note that regardless of government will, how much actual market participants will feel and follow the changes remains uncertain. Even with established systems and eased regulations, realistic limitations may prevent expected responses. Some views suggest moving beyond internationalization to complete deregulation of Won controls. A senior official at a commercial bank stated that even with custody business institutionalization, breaking into the foreign-centered market is realistically difficult, noting foreign response will be important but incentives to use newly established infrastructure may not be significant. The official mentioned that offshore non-deliverable forward (NDF) transactions operate smoothly, suggesting foreigners may not feel significant inconvenience, requiring observation of whether regulatory easing will be felt by foreigners.
Lee Hyung-ryeol, Director of the International Finance Bureau at the Ministry of Finance, explained the aim is to enable foreigners to hold and freely use Won without any hesitation, fear, or reluctance, allowing problem-free investment in Won assets and use of Won in trade transactions and economic activities. Lee emphasized the initiative removes limitations foreign investors face due to time differences when investing in Korea and establishes a foundation to increase the proportion of Won settlements in international current account transactions.
FAQ
What did the Korean government announce on the 19th regarding Won internationalization?
The Korean government announced a Won Internationalization Roadmap on the 19th with four core policy tasks: building offshore Won trading infrastructure with 24-hour market operation, expanding Won transaction demand through capital market access improvements, expanding Won liquidity supply via unlimited overdraft for foreign banks, and establishing multi-layered risk management systems.
How will Won internationalization benefit individual users and companies?
Individuals will be able to make overseas payments using QR codes without currency exchange and access 24-hour market rate exchanges for nighttime US stock investments. Companies will reduce currency exchange costs and foreign exchange risks by contracting and receiving export proceeds directly in Won, eliminating conversion expenses and rate fluctuation impacts.
What access will foreign investors gain through Won internationalization?
Foreign investors will be able to trade Won 24 hours during their local business hours, open Won accounts at global banks in London and New York instead of Korean institutions, and borrow Won when needed to invest in the Korean stock market without time zone constraints.
