Won Payments at 3.4%: Internationalization Depends on Actual Demand

The challenge of the internationalization of the won goes beyond building a payment network; it involves creating reasons for overseas companies and investors to actually use and hold the won. Last year, the proportion of won payments in Korea's export payments was 3.4%, while for import payments it was 6.6%, indicating that the dollar-centered payment structure remains prominent.

According to the Bank of Korea's data on payment currencies for exports and imports, the proportion of won payments in export payments was recorded at 3.4%, an increase of 0.8 percentage points from the previous year. The proportion of won payments in import payments was 6.6%. Although the share of the won has increased somewhat, the dollar accounted for 84.2% of export payments and 79.3% of import payments.

The internationalization of a currency is different from simply using convenient payments abroad. Companies must have an incentive to price in a specific currency and to retain or manage that currency after the transaction. For the won to be used as an international payment currency, there needs to be both a payment infrastructure and places where won funds can be utilized.

China's yuan internationalization serves as a comparative example for the reform of Korea's foreign exchange market. The State Administration of Foreign Exchange of China announced on July 17 that the cross-border receipts and payments by banks to customers reached $9.2 trillion (approximately 13,008.8 trillion won) in the first half of this year, a 21% increase compared to the same period last year. Among this, the proportion of yuan payments was 52.9%, which is 1.3 percentage points higher than the annual figure for 2025.

The expansion of yuan usage is backed by trade volume and clearing networks. China raised the proportion of yuan payments in merchandise trade to about 30% last year. It is also expanding channels for overseas financial institutions and companies to directly settle and clear in yuan.

Recently, the People's Bank of China granted Deutsche Bank in Germany the status of a yuan clearing bank in Frankfurt. This marks the first time a non-Chinese bank has been designated as a yuan clearing bank in Europe. This effectively broadens the channels for European financial institutions and companies to directly settle and clear in yuan.

Starting from September 14, a cross-border fund concentration management system for multinational corporations that encompasses both yuan and foreign currencies will be implemented across China. This system allows affiliated companies to pool their funds into a single fund pool and settle only the net amount after offsetting receivables and payables. While it does not mandate the use of yuan, it allows for the management of both yuan and foreign currencies in the same account, which is expected to reduce cross-border fund management costs.

By avoiding the use of a third-country currency in cross-border payments, the double currency exchange procedures and costs can be reduced. The ability to reuse yuan earned in China for local parts and raw material purchases is also an incentive for companies. The choice of payment currency is closer to supply chain and fund management structures than mere remittance convenience.

This trend is also connected to digital payments. Previously, it was reported that the cumulative transaction volume of the cross-border payment platform "mBridge" based on the central bank's digital currency by the Bank of China has surpassed 600 billion yuan. mBridge is interpreted not as an immediate substitute for the dollar but as a long-term infrastructure that expands yuan-based trade payment channels.

Korea has also begun reforming its systems. The domestic foreign exchange market transitioned to a 24-hour trading system five days a week starting July 6. Domestic foreign exchange market participants can now trade dollar-won spot exchanges at night, allowing them to immediately cover positions arising from offshore non-deliverable forward (NDF) contracts.

However, NDF transactions do not involve the actual exchange of won; only the exchange rate differences are settled in dollars. Just because the foreign exchange market is open 24 hours does not mean that the won will immediately become a payment and holding currency abroad. A payment network that actually facilitates the exchange of won abroad and the liquidity to support it is necessary.

The government is promoting a plan to register overseas financial institutions that meet certain criteria as offshore won payment institutions, enabling them to provide won deposit, loan, and remittance services to foreign clients. These institutions will open integrated won accounts with domestic agent banks and settle through the Bank of Korea's payment network. This structure allows foreigners to hold, procure, and settle in won through local financial institutions without directly opening accounts in Korea.

The Bank of Korea's won international payment network is set to undergo pilot operations in September, aiming for formal operation next year. Initially, the required won for payments will be supplied by private financial institutions, and if there is a shortage, the Bank of Korea or the foreign exchange stabilization fund will be utilized. There are also plans to refine related systems to allow foreigners to manage temporarily held won in short-term financial products and to utilize them in collateralized bond lending transactions.

The questions raised by the Chinese example are clear. The internationalization of the won is not a technical issue of enabling the transfer of won abroad, but rather a matter of securing economic reasons for trading partners to choose the won over the dollar. The won international payment network will first check the operational status of the payment infrastructure during the pilot operation in September.