South Korea to pilot won international payment network in September

South Korea will launch a pilot program next month for a won international payment network that allows foreign investors to hold, settle and transfer the Korean currency through overseas financial institutions.

The government plans to revise related regulations and bring the network into full operation in 2027.

The Ministry of Economy and Finance said Thursday that Vice Minister for International Economic Affairs Moon Ji-sung held a video conference Wednesday with global asset managers — including BlackRock, Vanguard, Amundi, Northern Trust and State Street — as part of the Global Key Investor Consultative Body.

The consultative body is a regular communication channel through which the government directly briefs overseas investors on improvements to foreign exchange and capital market systems and reviews difficulties they encounter during the investment process.

The Asia Securities Industry and Financial Markets Association and the Asian Corporate Governance Association also took part. On the domestic side, the Ministry of Economy and Finance, the Financial Services Commission, the Bank of Korea, the Financial Supervisory Service, the Korea Exchange and the Korea Securities Depository were represented.

At the meeting, the government outlined the won international payment network, electronic foreign exchange trading guidelines — known as e-FX guidelines — designed to support around-the-clock foreign exchange market operations, and the overhaul of the settlement promotion deposit system.

The e-FX guidelines, distributed Wednesday, set out system stability and internal control standards that financial institutions must follow when conducting algorithm-based electronic foreign exchange transactions. The government said it will use the guidelines to expand unmanned, automated foreign exchange trading by financial institutions during overnight hours.

The government will also revamp how foreign investors pay settlement promotion deposits — funds submitted to ensure securities settlement. Starting in September, investors will be allowed to pay the deposits in shares or bonds in addition to cash, which is currently the only accepted form.

From October, securities that a foreign investor is scheduled to receive through same-day Korea Exchange market settlement will be recognized as collateral when the Korea Securities Depository calculates settlement promotion deposit requirements. The government expects this to ease the burden on foreign investors to secure won liquidity in advance for settlement, as they will be able to receive the securities first without paying the full deposit amount.

The won international payment network will enter its pilot phase after the government amends relevant laws governing the registration procedures and requirements for overseas financial institutions handling won-denominated business next month. The core aim is to improve access to the won by allowing foreigners to hold, settle and transfer the currency through overseas financial institutions without opening a separate account in South Korea.

Global investors gave a positive assessment of the direction and progress of South Korea's foreign exchange and capital market reforms. However, they said the detailed operational workings of newly introduced systems should be continuously monitored to ensure they function smoothly in actual investment practice.

Investors particularly stressed the need to create conditions for active won trading at competitive prices during London and New York trading hours, in line with the 24-hour foreign exchange market. On the settlement promotion deposit overhaul, they said they expected it to significantly reduce the won liquidity burden arising during securities settlement, and asked the government to closely track how the system is being implemented.

The government said it will work with relevant agencies to develop additional improvements for any remaining inconveniences in the investment process after the reforms take effect, and will share the results with investors. It also plans to hold the Global Key Investor Consultative Body on a regular basis to monitor how the foreign exchange and capital market systems are taking root.