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A speculative frenzy in dollar-supported stabecines has motivated South Korea to lift a 14-year ban on domestic financial institutions to buy so-called Kimchi bonds as it wants to draw capital flows.
Korea’s bank had banned local investment in Kimchi Bonds – Forex loans issued an onshore and intended to adapt to South Korean – in 2011 they would expose local issuers to the local issuers to mismatched currency.
But in policy change, the alarm of the Central Bank has been shown about the weakness in victory and lack of foreign exchange liquidity. South Korean retail investors run to invest in foreign stock and dollar-supported stabelin with trading in crypto instruments that kill WON57tn ($ 42BN) in the first quarter of the year.
Bok said in a statement, “This measure is expected to contribute to the improvement in the state of liquidity of the foreign exchange and reducing the pressure on the weak victory and resolving the imbalance in foreign exchange supply and demand.”
Jeet strengthened more than 1.2 percent on Monday, which is a dollar one, at the highest level in eight months, to trade at WON1,353 before winning some of his profit.
This is the latest step of the government to promote foreign exchange flow after the country’s foreign exchange market has ended in five years after ending the country’s foreign exchange market and promoting foreign exchange flows.
The government has increased the hedging limit in the currency derivatives, reduced the ban on foreign exchange loans by domestic banks and increased the foreign exchange swap line between Bok and National Pension Service to reduce the purchase of dollars operated by the state pension funds in the domestic market.
This hopes to attract more dollars to the country and to unbalance the retail outflow.
“We expect more Korean branches of foreign financial institutions to bring dollars for kimchi bond investment. This will increase the dollar supply to the domestic market,” said an official.
In the past, the main issuer of Kimchi Bonds was foreign subsidiaries of South Korean companies that required dollar funding. Analysts hope that more domestic groups will release kimchi bonds as they can now sell foreign exchange loans and convert it to win for domestic use.
“There is a growing belief that Korean won is very weak relative to its basic things and the government wants the local currency to appreciate further,” said Fellow Hwang Sei Woon at the Korea Capital Market Institute.
“The latest measures indicate high demand for won in the long run, showing the government’s will to open the foreign exchange market further.”
The increase in political stability after the upheaval of last year’s martial law has won by more than 8 percent against the dollar this year.
A new government, which has taken over in this month, has promised high fiscal expenses, and is under pressure to promote the value of its currency in a trade talks with Seoul Washington.
Despite the efforts to improve market access to foreign investors, South Korea has not been upgraded to the condition of the Bazaar developed by the Global Index provider MSCI, which has cited obstacles for the foreign exchange market liberalization.
Hwang warned that domestic companies will not hurry to issue Kimchi bonds, given the cost of high money Dollar Compared to those in victory.
