The photo shows the exterior of the newly constructed integrated annex of the Bank of Korea. (Yonhap)
SEOUL, June 30 (Korea Bizwire) — The South Korean central bank on Monday lifted restrictions on local institutions investing in foreign currency-denominated bonds issued for domestic use, known as kimchi bonds, in an effort to improve foreign exchange liquidity, officials said.
Under the new measure, foreign exchange institutions, including foreign exchange banks, securities firms and insurance companies, are allowed to invest in kimchi bonds without limitations starting Monday, according to the Bank of Korea (BOK).
The restriction was introduced in 2011 to prevent debt issuance intended to circumvent currency loan regulations and to curb excessive domestic investment in foreign currency debt.
With a growing imbalance in foreign exchange (FX) supply and demand, however, there have been calls to ease the regulations.
“We expect the measure to help alleviate the imbalance in foreign exchange supply and demand by improving foreign currency liquidity and easing downward pressure on the Korean won,” a BOK official said.
“It is also expected to contribute to the development of the domestic capital market by revitalizing the kimchi bond market,” the official added.
Privately placed bonds, however, are excluded from the latest deregulation out of concerns that they could be used to bypass existing restrictions on the use of such loans, according to the central bank.
(Yonhap)
