South Korea has successfully lifted a 14-year ban on investments in kimchi bonds, which is expected to help in attracting foreign capital inflows and improving currency liquidity.
Lifting the Ban on Kimchi Bonds
The ban on investments in kimchi bonds was introduced in 2011 by the Bank of Korea due to concerns about currency mismatches among local issuers. The decision to lift the ban was made in response to the weakening of the won and a shortage of foreign currency liquidity, prompting South Korean investors to seek opportunities in overseas markets.
Impact on Currency and Economy
The lifting of the ban has positively affected the exchange rate of the South Korean won, which strengthened by 1.2% to 1,347 won per dollar, reaching an eight-month high. Despite some corrections, the overall trend remains positive, given the rising costs of attracting dollar financing compared to those in won.
Government Strategy for Improvement
The South Korean government is implementing several measures to stimulate foreign currency inflows, including raising hedging limits in currency derivatives and increasing limits on foreign currency loans by local banks. The lifting of the ban on kimchi bonds is expected to facilitate a more active issuance of these bonds by local companies.
The lifting of the ban on kimchi bonds represents a significant step towards improving currency liquidity and supporting the South Korean economy, which will help restore investor confidence and provide a boost to local businesses.
