S.Korea, China agree to launch Won-Yuan trading market in Seoul

SEOUL - South Korea and China agreed Thursday to launch a market for direct trading between currencies of the two countries, which may open in Seoul this year, to reduce foreign exchange costs and risks for companies and boost bilateral trade and investment, the South Korean presidential office said.

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The launch was pursued by Seoul as it will meet national interests of South Korea to diversify settlement currency and respond to the Chinese currency's internationalization and enhanced stature, the office said in a statement.

Central banks of the two countries signed a memorandum of understanding (MOU) to designate clearing banks, with visiting Chinese President Xi Jinping and his South Korean counterpart Park Geun-hye in attendance.

Xi arrived here Thursday for a two-day state visit, his first trip to the Asian neighbor since he took office. The Chinese president held a summit with Park, his fifth summit meeting with her. Park paid a state visit to China in June last year.

Only Chinese lenders in Seoul will be appointed as clearing banks, capable of settling payments in the yuan within South Korea. It will make daily yuansettlement possible, which has been done mainly in Hong Kong, in the country.

Under the yuan qualified foreign institutional investors ( RQFII), China granted 80 billion yuan (some $13 billion) of quotas to South Korean financial institutions, allowing the institutions to make direct investment in the Chinese domestic financial market with yuan funds earned from the won-yuan direct trading market.

With these agreements, South Korea will establish the market where the yuan can be converted into the won first in Seoul. The two countries agreed to push for the establishment of the won-yuantransaction market in Beijing in a gradual manner according to the South Korean currency's internationalization.

South Korea also agreed to encourage local and foreign firms here to sell the yuan bonds within the country in a bid to boost financial transactions in the Chinese currency.