The South Korean government said Friday that it would open a won-yuan direct trading market in December.

The Finance Ministry said it plans to raise the portion of yuan as a trade settlement currency with China from the current 1.2 percent to 20 percent over the long term. Currently, over 95 percent of the both nations’ trade is done in U.S. dollars.

To boost won-yuan direct trading, the government will adopt a market maker system considering the nascent stage of the market. Market makers, which will be comprised of 10 commercial banks, will play a role in proposing the purchase price on the market, in a bid to set the price and to supply liquidity to the market.

An electronic broking service will be developed in December for the safety and convenience of won-yuan trading.

The Finance Ministry also said it would step up its efforts for the smooth transaction of a clearing bank which opened in October. The clearing bank is serving as the Korean branch of the People’s Bank of China in a bid to clear, purchase and supply liquidity of yuan for local commercial banks, foreign banks, securities and securities depositories.

For the stable business performance of the bank, the government will monitor the safety of the bank’s system and review the exemption of bank levies on yuan debts.

Korean financial firms’ investment opportunities in the Chinese market will also be expected to increase down the road.

The Finance Ministry said it would continue to negotiate with the Chinese government to allow more Korean financial organizations to invest in the market. Next year, apart from asset management companies, local banks, securities and insurance companies are also expected to join the RMB qualified foreign institutional investors program, which allows foreign firms to invest in RMB denominated capital markets.

By Shin Ji-hye (shinjh@heraldcorp.com)