South Korea Ends 14-Year Ban on Kimchi Bonds — What’s Driving the Shift?

2025-07-01 06:28:29

Main Idea

South Korea has lifted its 14-year ban on kimchi bonds to address foreign exchange liquidity issues and stabilize the won, driven by significant outflows into overseas stocks and stablecoins.

Key Points

1. South Korea ended its 2011 ban on local institutions investing in kimchi bonds to boost foreign exchange liquidity and ease pressure on the won.

2. The ban was initially imposed to curb short-term external liabilities and prevent regulatory loopholes.

3. In Q1 2025, South Koreans invested nearly $42 billion in overseas stocks and stablecoins, prompting the policy shift.

4. The move aims to revive the kimchi bond market and support domestic capital formation.

5. The decision aligns with broader financial stability efforts, including a pause on the CBDC pilot program.

Description

South Korea has scrapped a 14-year ban on local institutions investing in foreign currency-denominated bonds issued for domestic use, responding to mounting pressure from massive capital outflows and a surge in demand for dollar-backed stablecoins . The move aims to boost foreign exchange liquidity and ease downward pressure on the won. The Bank of Korea said Monday that banks, securities firms and insurers involved in foreign exchange operations can now freely invest in so-called kimchi bonds. ...

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