SEJONG, Nov. 5 (Korea Bizwire) – South Korea plans to issue yuan-denominated foreign exchange stabilization bonds in China to better meet rising demand for the Chinese currency and help local firms do business in the world’s No. 2 market, a government source said Thursday.
According to the source in the finance ministry, the government submitted a request to Chinese regulators asking permission to issue the bonds.
“The matter is being reviewed and once permission is given the size of timing for the bond issuance will be decided,” said an official, who declined to be identified.
Beijing has been moving to open its financial market, and allowing outsiders to issue bonds is part of the ongoing process.
He said that besides the administrative process, market conditions will be checked before bonds are issued.
South Korea can issue a maximum 700 billion won (US$615.3 million) worth of foreign exchange stabilization bonds this year. The ceiling for next year has been set at 500 billion won.
At present, local firms that need the yuan had to acquire the currency through an off-shore bonds market, not from the Chinese market. Last year the off-shore bond market controlled by the Export-Import Bank of Korea issued bonds worth 590 billion won, with this number expected to top 2.7 trillion won this year.
Another insider said that Seoul has even picked a firm to handle the sales process.
He said that issuing bonds in China can allow the country to more easily secure adequate liquidity and even help local companies who want to sell corporate debts in China check overall market conditions.
“With the Chinese economy expected to continue growing, and the yuan to gain more prominence down the line, it makes sense for South Korea to diversify its foreign currency holdings,” the official said.
The ministry official, however, said it is too early to say if South Korea will be the first to issue foreign exchange stabilization bonds in China.
The official did not give names, but media reports indicate Russia and Canada have taken similar actions and requested permission to issue yuan-based bonds.