By Choi Kyong-ae
The Ministry of Strategy and Finance said Wednesday it is considering allowing Iran to invest funds from its won-denominated accounts at Korean banks in Seoul stocks and bonds.
The move comes after Iran reportedly threatened to withdraw deposits worth at least 3 trillion won ($2.5 billion) from the accounts it opened years ago at Industrial Bank of Korea (IBK) and Woori Bank in order to carry out financial transactions in Korea at a lower interest rate.
The permits for investment in stocks and bonds are aimed at boosting the returns on the accounts.
"The move is under serious consideration but nothing has been decided yet," said Huh Jin, a ministry official in charge of the matter.
Korea and Iran have agreed to maintain the latter's won-denominated bank accounts in trade transactions with the former because the ban on U.S. dollar-based transactions has yet to be lifted despite the removal of economic sanctions on the Middle Eastern country, the ministry said.
Ministry officials and bank executives visited Iran at the end of January to discuss maintaining the won-denominated accounts held by the Central Bank of Iran in the two Korean banks for the time being to facilitate trade between the two countries, Huh said.
"We reached an agreement to maintain the won-denominated accounts of the Iranian central bank in the two Korean banks, as it will be some time before dollar-based transactions are available," the official said.
The won accounts came into being right after September 2010 when Korea joined the U.S. and other Western allies in economic sanctions against Tehran which had been developing nuclear weapons.
This allowed, for example, a Korean oil refiner to pay for crude oil imported from Iran by transferring money to the IBK or Woori bank accounts owned by the Central Bank of Iran. Then the Iranian central bank changes the won-denominated payments into their own currency, Huh said.
If a Korean company sells its products to its Iranian counterpart, it receives payment for the sale in the Korean currency through state-run Korean bank accounts, he said.
The bank accounts reportedly have 3 trillion won to 4 trillion won. But the ministry declined to confirm the value of total deposits.
Meanwhile, Korea is seeking approval from the U.S. to use the dollar as the currency of choice when trading with Iran.
"As the won should be initially exchanged into U.S. dollars and then into other currencies such as the euro, the yen and the yuan, a U.S. green-light on the dollar's role as the medium currency will help boost trade between Korea and Iran," the official said.
As multinational companies seek opportunities to head back to Iran, it is also seeking to diversify settlement currencies.
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