The Bank of Korea will allow foreign exchange business operators to invest in 'kimchi bonds (foreign currency debt securities issued domestically)' starting from the 30th.
The Bank said on the 29th, "Starting from the 30th, the foreign exchange business operators will ease regulations to allow autonomous investment in kimchi bond issuance funds regardless of their purpose."
Kimchi bonds are foreign currency-denominated bonds issued in Korea by foreign corporations or institutions. This measure is part of the foreign exchange supply improvement plan established last year, which is expected to improve foreign exchange liquidity and reduce the pressure of the won's depreciation.
Since July 2011, foreign exchange business operators have been restricted from investing in kimchi bonds that were issued for the purpose of being exchanged into won. This restriction was due to cases where kimchi bonds were used as a means to circumvent foreign currency loan regulations, as well as measures to mitigate volatility from excessive capital inflows and outflows.
However, with this measure, foreign exchange business operators can also autonomously invest in kimchi bond issuance funds regardless of their purpose. A Bank official stated, "This measure is expected to contribute to improving foreign exchange liquidity conditions and alleviating won depreciation pressure, while also aiding in the development of domestic capital markets, such as revitalizing the kimchi bond market."
However, privately issued bonds are similar in economic substance to foreign currency loans, and allowing investment could serve as a means to circumvent regulations restricting the use of foreign currency loans, thus they have been excluded from this easing.