UPDATE 1-S.Korea aims to launch yuan/won trading this year - official

Wed Jun 18, 2014 3:36am EDT

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By Choonsik Yoo

SEOUL, June 18 (Reuters) - South Korea aims to launch direct trading of yuan/won this year, a senior government official said on Wednesday, which is likely to boost trade with China while helping Seoul prepare for the yuan's emergence as a major international currency.

"We hope that (direct trading) will contribute to increasing trade and investment," Choi Hee-nam, head of the finance ministry's international finance bureau, said by telephone. "We are making preparations with the aim of beginning it this year."

Bilateral trade between the two neighbouring countries has soared to $229 billion by 2013 from just $6 billion in 1992, when they established full diplomatic relations, but more than 99 percent of the deals are paid in U.S. dollars, he said.

Both the yuan and won are not fully convertible globally and companies use the dollar as the main currency for doing business with each other.

A senior official at the central bank, which along with the finance ministry administers foreign exchange policy, said all basic study was done and authorities were now examining practical issues.

"China is our biggest trading partner but we have to worry about dollar liquidity (at times of global turmoil) because we have to use the dollar in trade with China," Ryoo Sang-dai, head of the Bank of Korea's international department.

Both Choi and Ryoo said direct yuan/won trading could be beneficial because South Korea has been running a current account surplus with China, which in turn has been pressing use of the yuan in foreign trade.

"(The yuan/won trading) will also help us acquire experience and knowledge regarding the yuan and therefore take an advantageous position internationally when the yuan becomes a reserve currency," Ryoo said.

The finance ministry's Choi said ideas for the trade included the government designating market-makers or the central bank buying the yuan if demand fell short.

A Seoul-based senior executive at a global investment bank said recently South Korea also wants to introduce direct yuan/won trading partly because its huge current account surplus has attracted criticism from the United States, even though much of the surplus came from China.

He declined to be named, saying it was a sensitive issue.

But Choi said the planned launch of the yuan/won trading had nothing to do with any opinion on the won's value.

The U.S. Department of Treasury criticised South Korea in a biannual report in April for keeping the won cheap even as the country runs a big current account surplus - $80 billion last year.

Official data shows $55.6 billion of South Korea's total current account surplus came from China. (Editing by Jacqueline Wong and Eric Meijer)

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