South Korea to Open Dollar-Won Interbank Market to Foreign Financial Institutions

South Korea has announced its plans to initiate the acceptance of applications from foreign financial institutions starting on October 18, with the aim of granting them permission to participate in the dollar-won interbank market within the country. This strategic move is poised to bolster the nation’s foreign exchange market and enhance trading opportunities.

The Ministry of Finance in South Korea, in an official statement, detailed the government’s intentions to permit qualified foreign entities to engage in the domestic interbank market, with this initiative scheduled to come into effect in 2024. The primary objective behind this decision is to facilitate the expansion of the foreign exchange market and foster greater trading activity.

Presently, the South Korean won can only be directly exchanged for the US dollar through local banks, with trading hours limited to a mere six and a half hours each day, spanning from 9:00 a.m. to 3:30 p.m. local time.

Under the proposed plan, the currency exchange period is set to extend into the early hours of the morning, with trading continuing until 2:00 a.m. local time or aligning with the closing time of London’s business activities. In conjunction with this development, South Korea is gearing up for a comprehensive regulatory overhaul designed to encourage greater foreign participation in its financial markets.

The Ministry has outlined specific criteria for financial institutions seeking permission to engage in this market. Eligible entities must adhere to the capital and liquidity requirements established under Basel III and secure accreditation from a bank or broker in their home country.

Once granted permission, these financial institutions will have the opportunity to actively participate in the dollar-won spot market and engage in foreign currency swap trading. This move is anticipated to not only diversify the pool of market participants but also enhance liquidity and trading efficiency within South Korea’s financial landscape.

As South Korea opens its doors to foreign financial institutions in the dollar-won interbank market, it stands poised to further integrate itself into the global financial ecosystem, while providing enhanced trading opportunities and fostering greater market resilience. The initiative reflects the nation’s commitment to facilitating international financial engagement and expanding its role in the global financial marketplace.

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