By Yoon Ja-young
The Korean economy is expected to become more closely tied with the Chinese economy following the International Monetary Fund's (IMF) decision to include the Chinese yuan in key currencies, analysts said Tuesday.
Businesses will increase settlements in yuan and Korea may emerge as an important market for yuan trading.
Lee Chi-hun, head of the China research team at the Korea Center for International Finance, expects the use of the yuan to surge tenfold to $50 billion in Korea's trade settlements by 2020.
"The use of the yuan could surge in Korea," he said, citing the IMF's inclusion of the yuan in its key currencies, the Korea-China free trade agreement (FTA) and the increasing number of Chinese tourists in Korea.
The IMF decided Monday to add China's renminbi to the basket of special drawing rights (SDR), which currently includes the dollar, the euro, the Japanese yen and the British pound, beginning in October next year.
The decision is expected to provide new opportunities for the Korean economy, which has been closely tied with the world's second-largest market.
Ma Ju-ok, an economist at Kiwoom Securities, said the inclusion will strengthen the Chinese yuan in the long run, with increasing demand for the currency in international settlements. Countries will also want to include yuan assets in their foreign exchange reserves.
He also said that this will help emerging economies lessen their reliance on the dollar, providing them with a cushion against external shocks.
"The fluctuation of the dollar will have less effect on emerging economies. It means fewer discount factors for emerging market assets," the economist said.
He also said it will positively affect Seoul stocks in the mid-to long-term.
However, he ruled out any immediate impact on the financial market as the inclusion is next year.
The government has been encouraging the use of the Chinese yuan, opening a won-yuan direct trading market last year. Previously, businesses trading with China had to change yuan to dollars and then dollars to won, but the new market gets rid of such inconvenience.
One year since its launch, daily transactions at the market averaged $3.6 billion as of last month, which compares with mere $880 million a day last December. Settlements in yuan now take up over 3 percent of the country's trade with China. The amount is expected to rise fast following the globalization of the Chinese currency.
The government is planning to go further to encourage yuan transactions.
Choi Hee-nam, deputy finance minister of international affairs, said at a conference Tuesday that the won/yuan direct exchange rate will be used in the market from next year. Currently, the arbitrage rate pegged to the U.S. dollar is used for won/yuan transactions despite the opening of the won-yuan direct trading market.
Seoul also aims at becoming an overseas hub for yuan trading.
"The decision to include the yuan in the IMF's SDR will be a paradigm shift where the yuan expands its international influence," Choi said. "We should be equipped with the capability and infrastructure to seize opportunities amid this change," he added.
The deputy minister said the government will increase efforts so that Korea can become an overseas yuan trading hub, including the issuance of yuan-denominated foreign exchange stabilization bonds and the expansion of yuan loans for Chinese firms by Korean banks.
The Korean economy is expected to become more closely tied with the Chinese economy following the International Monetary Fund's (IMF) decision to include the Chinese yuan in key currencies, analysts said Tuesday.
Businesses will increase settlements in yuan and Korea may emerge as an important market for yuan trading.
Lee Chi-hun, head of the China research team at the Korea Center for International Finance, expects the use of the yuan to surge tenfold to $50 billion in Korea's trade settlements by 2020.
"The use of the yuan could surge in Korea," he said, citing the IMF's inclusion of the yuan in its key currencies, the Korea-China free trade agreement (FTA) and the increasing number of Chinese tourists in Korea.
The IMF decided Monday to add China's renminbi to the basket of special drawing rights (SDR), which currently includes the dollar, the euro, the Japanese yen and the British pound, beginning in October next year.
The decision is expected to provide new opportunities for the Korean economy, which has been closely tied with the world's second-largest market.
Ma Ju-ok, an economist at Kiwoom Securities, said the inclusion will strengthen the Chinese yuan in the long run, with increasing demand for the currency in international settlements. Countries will also want to include yuan assets in their foreign exchange reserves.
He also said that this will help emerging economies lessen their reliance on the dollar, providing them with a cushion against external shocks.
"The fluctuation of the dollar will have less effect on emerging economies. It means fewer discount factors for emerging market assets," the economist said.
He also said it will positively affect Seoul stocks in the mid-to long-term.
However, he ruled out any immediate impact on the financial market as the inclusion is next year.
The government has been encouraging the use of the Chinese yuan, opening a won-yuan direct trading market last year. Previously, businesses trading with China had to change yuan to dollars and then dollars to won, but the new market gets rid of such inconvenience.
One year since its launch, daily transactions at the market averaged $3.6 billion as of last month, which compares with mere $880 million a day last December. Settlements in yuan now take up over 3 percent of the country's trade with China. The amount is expected to rise fast following the globalization of the Chinese currency.
The government is planning to go further to encourage yuan transactions.
Choi Hee-nam, deputy finance minister of international affairs, said at a conference Tuesday that the won/yuan direct exchange rate will be used in the market from next year. Currently, the arbitrage rate pegged to the U.S. dollar is used for won/yuan transactions despite the opening of the won-yuan direct trading market.
Seoul also aims at becoming an overseas hub for yuan trading.
"The decision to include the yuan in the IMF's SDR will be a paradigm shift where the yuan expands its international influence," Choi said. "We should be equipped with the capability and infrastructure to seize opportunities amid this change," he added.
The deputy minister said the government will increase efforts so that Korea can become an overseas yuan trading hub, including the issuance of yuan-denominated foreign exchange stabilization bonds and the expansion of yuan loans for Chinese firms by Korean banks.
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