South Korea Announces Roadmap to Allow Offshore Use of Korean Won

South Korea's finance ministry announced a roadmap on July 19 to internationalize the Korean won and turn it into a freely convertible currency. The plan focuses on completing offshore transaction and settlement systems while removing institutional restrictions that currently block foreigners from obtaining or using the currency outside the country.

Foreigners must still open accounts at domestic banks to settle won transactions and meet prior reporting requirements for some capital moves.

The ministry said these hurdles persist even after the government launched a 24-hour foreign exchange market earlier in July. The roadmap calls for replacing the market average rate benchmark with the time-weighted average price method to match global standards. Electronic foreign exchange guidelines will take effect in August to allow automated overnight trading.

Foreigners will also be permitted to settle deals through won accounts at offshore institutions without domestic bank accounts. The government will offer incentives such as expanded trade insurance coverage to encourage South Korean companies to invoice international trade in won.

The ministry stated that greater won use should lower costs for raising funds, currency exchanges and hedging while reducing the effect of exchange rate swings on the real economy.

It added that the steps form part of a broader effort to build a multi-layered risk management system through external safety nets and coordinated policy execution.