A speculative frenzy in dollar-backed stablecoins has prompted South Korea to lift a 14-year ban on domestic financial institutions buying so-called kimchi bonds as it seeks to draw in offsetting capital inflows.

The Bank of Korea had prohibited local investment in kimchi bonds — foreign currency debts issued onshore and intended for conversion into South Korean won — in 2011 because of concerns they would expose local issuers to currency mismatches.

But the policy change shows the central bank’s alarm about weakness in the won and a lack of foreign currency liquidity as South Korean retail investors rush to invest in overseas stocks and dollar-backed stablecoins, with trading in the crypto instruments hitting Won57tn ($42bn) in the first quarter of the year.