After the US dollar stablecoin boom, South Korea lifted the 14-year ban on "Kimchi bonds"
PANews reported on July 1 that according to the Financial Times, affected by the speculative craze of US dollar stablecoins, in order to attract hedging capital inflows, South Korea lifted the 14-year ban on domestic financial institutions buying "Kimchi bonds" (foreign currency bonds issued onshore, intended to be exchanged for won). Previously, the Bank of Korea banned local investment in such bonds in 2011 due to concerns about currency mismatch risks. Now, retail investors are pouring into overseas stock markets and US dollar stablecoin markets, causing the Korean won to weaken and foreign currency liquidity to be insufficient, so the Bank of Korea adjusted its policy.
The Bank of Korea said the move would improve foreign currency liquidity, ease the pressure on the won to depreciate, and solve the imbalance between foreign exchange supply and demand. On Monday, the won rose to its highest level in eight months. South Korea's foreign exchange reserves fell to a five-year low in May, the latest move by the government to relax foreign exchange controls and promote foreign currency inflows. The government also raised hedging limits and relaxed restrictions on foreign currency loans. Analysts expect more domestic companies to issue "Kimchi bonds." Although the government hopes to appreciate the local currency and open up the market, domestic companies will not rush to issue "Kimchi bonds" considering that the cost of US dollar financing is higher than that of won.
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