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The speculative frenzy of dollar-backed, ridiculous stubcoins has prompted South Korea to lift a 14-year ban on domestic financial institutions purchasing so-called kimchi bonds in an attempt to offset the inflow of capital.
In 2011, the Bank of Korea banned local investment in Kimchi bonds (foreign currency debt issued on land and aimed at South Korea’s victory) due to concerns exposing local issuers to currency discrepancies.
However, the policy change shows that South Korean retail investors invested in foreign stocks and reached Won57TN ($42 billion) in the first quarter of the first year, giving South Korean retail investors a warning from the central bank about a lack of foreign currency liquidity.
“This measure is expected to contribute to resolving the imbalance between supply and demand in foreign exchange by improving the conditions of foreign currency liquidity and mitigating pressure on weak victory,” I said in a statement.
Wong traded a portion of its profits at Win1,353 on Monday, with 1.2% at 1.2% at $1, at its highest level in eight months.
It is the latest move by the government to deregulate the country’s foreign exchange market and promote the inflow of foreign currency after falling in May in May.
The government has increased the foreign exchange line between BOK and the National Pension Service to raise hedging restrictions on currency derivatives, ease restrictions on foreign currency lending by domestic banks, and reduce the purchase of state-run pension fund dollars in the domestic market.
Kimchi bonds are hoping to attract more dollars to the country and offset retail outflows.
“We expect more South Korean foreign financial institutions to bring dollars to their investments in kimchi bonds, which will increase the supply of dollars in the domestic market,” a BOK official said.
The main issuers of past Kimchi bonds have been foreign subsidiaries of Korean companies that require dollar funds. Analysts hope that more domestic groups will issue kimchi bonds. Now, foreign currency debt can be sold and converted into victory for domestic use.
“There is growing awareness that South Korea’s victory is too weak compared to its basics, and the government hopes that the local currency will be even more grateful,” said Hwang Se-um, a senior researcher at the Korea Institute of Capital Markets.
“The latest measures show high demand for victory over the long term, reflecting the government’s willingness to open up the foreign exchange market even further.”
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Wong has strengthened more than 8% of the dollar this year, thanks to an increase in political stability following the turmoil of martial law last year.
The new government, which took office this month, has pledged to increase fiscal spending, and Seoul is under pressure from Washington to increase the value of its currency in trade talks.
Despite efforts to improve market access for foreign investors, South Korea has not been upgraded to its developed market position by the global index provider MSCI, which cites obstacles to the liberalization of the foreign exchange market.
Fan warned that domestic companies would not rush to issue kimchi bonds due to the higher dollar funding costs compared to WON’s funding costs.
