SEOUL, KOREA - The first instance of foreign direct investment in the yuan currency has been made after the beginning of the direct currency transactions between the Korean won and the Chinese yuan without the mediation of the U.S. dollar. According to banking industry sources on November 2, a Chinese real estate developer sent 68 million yuan (US$11.1 million) through Korea Exchange Bank on October 29 to pay for the capital requirement of a resort development company in Yeongjong Island.
Up until now, all yuan-won transactions had to go through currency exchange into the dollar. The latest case shows that Chinese investors will from now on be able to save the transaction costs while reducing foreign exchange risks.
Shin Dong-hoon, head of foreign currency division with Korea Exchange Bank, said, "Except big investors, all others, be it individual investors or corporations, feel burden when exposed to exchange risks. Once the current won-yuan arrangement is used by many more investors, investment from China will rise rapidly."
The latest move comes after the leaders of the two countries agreed on July 3 to expand usage of the yuan for bilateral trade. Global trade carried out in the yuan currency has increased from 2.06 trillion yuan in 2012 to 3.1 trillion yuan last year, and 2.9 trillion yuan in the first half of this year.
Article provided by The Korea Economic Daily
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