South Korea Ends 14-Year Ban on Kimchi Bonds to Stabilize Won and Boost Liquidity

South Korea has lifted a 14-year prohibition on local institutions investing in foreign currency-denominated bonds, known as kimchi bonds, as the government seeks to address mounting capital outflows and surging demand for dollar-backed stablecoins. The MOVE aims to enhance foreign exchange liquidity and alleviate pressure on the weakening won.

The Bank of Korea announced Monday that banks, securities firms, and insurers engaged in foreign exchange operations can now freely invest in these instruments. Initially restricted in 2011 to curb short-term external liabilities and regulatory arbitrage, the reversal comes as South Koreans funneled nearly $42 billion into overseas stocks and stablecoins in early 2025 alone.

"We expect this measure to improve foreign currency liquidity and ease downward pressure on the Korean won," a central bank official stated. Authorities also anticipate revitalizing the kimchi bond market to support domestic capital formation.