The much anticipated direct trading of a Korean won and a Chinese yuan in China began on Monday, marking the first time for the Korean currency to be directly exchanged outside Korea.

The state-run Chinese Foreign Exchange Trading System (CFETS) on Monday launched the market allowing direct exchange between the won and the yuan in Shanghai, with 14 banks designated as market makers to sell and buy Chinese and Korean currencies.

On the first day of the market opening, the base exchange rate to the yuan was set at 176.31 won ($0.15). About 20 minutes after the market opened at 9:30 a.m. (local time), a total of 130 million yuan (about $19.5 million) was exchanged between Woori Bank’s Chinese branch, the Bank of China, and the Industrial and Commercial Bank of China (ICBC), the first offshore trading of the Korean currency.

The Chinese financial authority is expected to include the Korean won to its currency basket tracking the yuan’s strength after the market closing.

Earlier this month, CFETS named five Korean banks among 14 others as market makers for the won-yuan direct trading market - the Chinese branches of KB Kookmin Bank, Shinhan Bank, Woori Bank, and KEB Hana Bank, as well as the Shanghai office of Korea Development Bank. Other market makers in the list are six Chinese banks including ICBC, China Construction Bank, and Agricultural Bank of China, and three foreign banks HSBC, Standard Chartered, and Citi Bank.

Daily trading of the won and yuan will be allowed until 11:30 p.m., and exchange rate fluctuation will be limited to plus or minus 5 percent of the base exchange rate.

Korean and Chinese leaders agreed to open the won-yuan direct exchange market in China when China’s Premier Li Keqiang visited Korea in October, last year. The direct exchange market for won and yuan opened in late 2014 in Seoul. The latest move in Shanghai is expected to bolster the trading between the two currencies significantly. The Korean won is the 14th currency to be directly exchanged with the yuan following others including the dollar, euro, and yen.

By Park Man-won

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