South Korea plans to launch a market for direct trading of its currency with China's yuan this week, officials said Sunday, a move that could facilitate trade based on their currencies and reduce their dependence on the U.S. dollar.

The won-yuan direct trading market is scheduled to open at 9 a.m. on Monday, following last week's test run of a transaction system, according to the finance ministry and the Bank of Korea.

Like the won-dollar market, the new market opens at 9.a.m. and closes at 3 p.m. every business day.

Officials expected the new currency market to help develop the local financial market as a hub for offshore yuan transactions and cushion South Korea against a global currency shock by diversifying currencies used in trade settlements.

The ministry said that the currency market could be helpful for South Korea in reducing its dependence on the dollar in its deals with China. Last year, South Korea's trade with China reached US$229 billion, up from $215.8 billion tallied the year before. 

The launch is a follow-up on an agreement reached during a summit between South Korean President Park Geun-hye and her Chinese counterpart Xi Jin-ping in July.

Early last month, the government selected 12 banks, including five foreign bank branches, as market makers in the run-up to the launch of the won-yuan direct market.

They include Shinhan Bank, Woori Bank, the Industrial Bank of Korea and the Korea Development Bank along with the Bank of Communications, Deutsche Bank, ICBC and HSBC, the ministry said. 

The banks will be tasked mostly with proposing selling and buying prices for transactions and inducing money flows, a move intended to lay the groundwork for the fledging currency market, which could face a lack of supply and demand in its early stage.

The ministry said that it plans to consider "diverse incentives" for the banks to carry out their role of helping nurture the new market.    

The government launched a similar won-yen transaction market in 1996, but it failed to take off due in large part to a lack of demand. (Yonhap)