Welcoming the yuan

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Welcoming the yuan

A new market for the direct trading of the Korean won and the Chinese yuan opened in Seoul Monday. The exchange officially kicked off its business after President Park Geun-hye and her Chinese counterpart, President Xi Jinping, agreed at a summit meeting in July to establish it as one of the most effective ways to expand the two nations’ economic ties and cooperation.

As the direct won-yuan trading market opened following the historic signing in November of a free trade agreement between Korea and China, the two countries’ trade is expected to gain momentum down the road. The direct exchange will certainly help reduce unwanted inconveniences in the bilateral trade settlement - stemming from the past dual-settlement system based on won-dollar and dollar-yuan exchange rates - and will surely save a considerable amount of transaction costs in the future.

Our government estimates that the current share of yuan-based settlements - which account for merely 1.2 percent of all trade with China - will soar to the 20 percent range. Above all, the launch of the won-yuan direct trading market carries great significance as it will not only contribute to extending bilateral trade between Seoul and Beijing, but also will set the foundation for attracting the trading of the yuan, a currency whose global stature has been growing steadily, to our domestic market.

Even though the yuan has not yet established itself as one of the key international currencies, it has emerged as one of the core currencies in Asia thanks to the dramatic rise of the Chinese economy. As a result, fierce competition to lead the yuan-trading market outside China is taking place in the Asia-Pacific region.

For instance, Hong Kong and Singapore are in a heated battle to expand their own yuan trading markets by becoming the center of yuan-based assets management. That’s a part of the yuan business Korea should also try to grab.

With the establishment of our own yuan-trading, Korea has hopped on the China bandwagon in a major way. It will have to compete with other financial hubs in the region. In order for Korea to position itself as one of the major yuan-trading hubs outside China, the direct trading market in Seoul must firmly take root and the government should reinforce our infrastructure and systems so that the fledgling market can lead to a further expansion of won-yuan trading and yuan-based financial investments at home and abroad.

The monetary authorities must do their best to establish the direct trading market as soon as possible by taking advantage of the currency swap agreement with China to prepare for potential imbalances in the supply and demand of yuan in the market.

JoongAng Ilbo, Dec. 2, Page 34
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