Seoul: The South Korean central bank on Monday lifted restrictions on local institutions investing in foreign currency-denominated bonds issued for domestic use, known as kimchi bonds, in an effort to improve foreign exchange liquidity, officials said.
According to Yonhap News Agency, under the new measure, foreign exchange institutions, including foreign exchange banks, securities firms, and insurance companies, are allowed to invest in kimchi bonds without limitations starting Monday, as stated by the Bank of Korea (BOK).
The restriction was introduced in 2011 to prevent debt issuance intended to circumvent currency loan regulations and to curb excessive domestic investment in foreign currency debt. With a growing imbalance in foreign exchange supply and demand, however, there have been calls to ease the regulations.
A BOK official indicated that they expect the measure to help alleviate the imbalance in foreign exchange supply and demand by improving foreign currency liquidity and easing downward pressure on the Korean won. Furthermore, it is expected to contribute to the development of the domestic capital market by revitalizing the kimchi bond market.
The central bank noted that privately placed bonds are excluded from the latest deregulation out of concerns that they could be used to bypass existing restrictions on the use of such loans.