Ministry of Strategy and Finance enters final stage of negotiations for ‘KRW payment’ for export and import payments to ASEAN “No. 1 priority for introduction is Indonesia”

"Vietnam, Philippines, Thailand, etc. are targeted, with 'Indonesia' most likely to be ranked first.
No need to exchange dollars for trade payments, reducing transaction costs for exporting companies
The impact of a significant decrease in the proportion of won among domestic export and import payment currencies in recent years

The government is negotiating with ASEAN (Association of Southeast Asian Nations) countries to introduce a Korean won payment system for imports and exports. This is due to the fact that the share of the dollar has increased and the share of the won has decreased significantly among Korea’s export and import payment currencies over the past five years. Accordingly, it is expected that domestic companies will be able to pay for imports and exports in Korean won in trade transactions with some ASEAN countries starting as early as the second half of this year. When the Korean won payment system is introduced, domestic companies are expected to enjoy the effects of reducing transaction costs incurred during currency exchange and mitigating the risk of foreign exchange losses.

Foreign exchange transaction regulations to prevent won outflow are also revised and the introduction of the system is accelerated.

According to a senior government official on the 8th, the Ministry of Strategy and Finance’s International Finance Department is reportedly in final stages of negotiations with ASEAN countries to introduce a Korean won payment system for imports and exports. Indonesia is currently mentioned as the most likely candidate, with plans to introduce it on a pilot basis in some ASEAN countries as early as the second half of this year. Previously, the government had been negotiating with ASEAN countries, including Indonesia, Vietnam, the Philippines, and Thailand, to introduce a Korean won payment system since the end of last year.

First of all, in order to introduce a Korean Won payment system, the regulations on the transfer and disposal of Korean Won specified in the Foreign Exchange Transaction Regulations (Article 7-9) must be revised. This is because current regulations restrict overseas remittance of won deposited in domestic financial companies by non-residents, such as individuals or corporations in foreign countries. Accordingly, the Ministry of Strategy and Finance announced the ‘4 Economic Policy Direction’ on the 2024th and announced that it will first revise related laws, including foreign exchange transaction regulations, within the first quarter of this year.

Once the won payment system is introduced, Korean companies will be able to pay for imports and exports through won accounts (free won accounts) of ASEAN banks opened at domestic financial institutions. Since there is no need to exchange won for foreign currencies such as dollars during the transaction process, it is expected that transaction costs incurred during currency exchange can be reduced and the risk of exchange loss due to exchange rate fluctuations can also be reduced.

The first and last time the won payment system was introduced was in 2010 when export and import payments with Iran were made in won. When the United States implemented the ‘Comprehensive Iran Sanctions Act’ in May 2010 and banned dollar transactions in trade with Iran, in October of that year, the Korean government introduced a system to settle trade payments using won instead of dollars. With the introduction of this Korean won payment system, export routes for Korean companies were no longer blocked, and Korea’s exports to Iran, which was
39 billion in 9,190.

Background of introduction of won payment system

The reason the government is actively trying to introduce a won payment system is because the won’s share of Korea’s export and import payment currencies has decreased significantly in recent years. According to the ‘4 Import and Export by Payment Currency’ statistics announced by the Bank of Korea in April last year, the proportion of the US dollar in export and import in 2022 increased, while the proportion of the euro, yen and won decreased.

Looking at the details, in exports in 2022, payment in US dollars accounted for the largest share at 85.0%, followed by 5.8% in euros, 2.3% in yen, 2.3% in won, and 1.6% in yuan, with the payment proportion of five currencies accounting for 5% of the total. accounted for %. In terms of increase/decrease, the proportion of the dollar increased by 97.1%p compared to the previous year, but the proportion of the won decreased by 1.2%p, showing a decline for five consecutive years.

During the same period, the proportion of import payments in dollars was also highest at 82.8%, followed by won at 6.1%, euro at 4.8%, yen at 3.9%, and yuan at 1.7%. In terms of increase/decrease, the dollar increased by 2.7%p compared to the previous year, but the won decreased by 0.5%p.

The reason why won-paid exports have been declining for five consecutive years is due to the sluggish exports to China, especially in major domestic industrial sectors such as semiconductors and automobiles. Kim Hwa-yong, head of the Bank of Korea’s balance of payments team, said, “Crude oil and gas are 5% settled in dollars, and in 100, as energy imports settled in dollars have expanded significantly, the proportion of dollar payments has increased.” He added, “In addition, while imports from China have increased, , Won payment income, mainly from semiconductor equipment and automobiles, fell below the overall import growth rate, leading to a decrease in the proportion of won payment payments,” he explained.