South Korea intends to relax its foreign exchange regulations governing capital transactions in the second half of this year, as part of a broader strategy to internationalize the Korean won and increase its use overseas.

As outlined in the economic policy direction for the latter half of the year released on Tuesday, the government plans to stimulate demand for the won. This will involve offering incentives for current account transactions settled in the currency and expanding foreign investors' access to won-denominated investment products.

On the supply side, authorities will ease borrowing restrictions for foreign financial institutions, making it easier for them to obtain won liquidity for securities settlements. They also aim to promote trade financing in won through currency swap funds, encouraging greater use of the currency in trade and financial transactions.

These initiatives highlight South Korea's commitment to opening its financial markets and elevating the won's status in global trade and investment. MSCI Inc. has consistently cited the country's foreign exchange controls as a key reason for not upgrading it to a developed market classification.

Following decades of stringent currency controls, the won transitioned to 24-hour trading last week. Extending trading hours is designed to better align with global markets and provide more convenient access for overseas investors.

The South Korean government has stated it will enhance its 24-hour monitoring and response systems to address market volatility and maintain regular communication with foreign investors. Officials have also pledged to formulate a plan in the second half of the year to deepen the deliverable foreign exchange market for the won, facilitating easier access to the currency for offshore investors.