Twelve banks, including five foreign bank branches, have been selected to lead the efforts to nurture the won-yuan direct transaction market in South Korea, the government said Monday, in a follow-up action to its recent efforts to encourage local businesses to use the Chinese currency for trade.

On Friday, the government said that it aims to encourage local businesses to use the yuan as a medium of currency exchange for up to 20 percent of commercial transactions with Chinese counterparts, which is up from the 1.2 percent tallied in 2013.

In close consultation with the finance ministry, the Bank of Korea, the country’s central bank, chose seven domestic banks and branches of five foreign banks as “creators” for the won-yuan transaction market.

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

They 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.

A won-yuan direct transaction market would provide a venue to directly trade the currencies of South Korea and China without resorting to the U.S. dollar.

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

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