South Korea will issue yuan-denominated foreign exchange stabilization bonds in China within the year to better meet rising demand for the Chinese currency and help local firms do business in the world's No. 2 economy, a government source said Monday.

According to the finance ministry source, the government expects to get permission from the People's Bank of China so it can sell the bonds in December.

"The government is weighing the time for the sale, by checking financial market conditions," the source, who did not wish to be identified, said.

It is estimated that the size of the yuan-based bond issuance will hover around 600 billion won ($517 million).

The move will mark a change from past practice, when the country only issued U.S. dollar and euro foreign exchange bonds.

The sale will help South Korea increase its holding of the Chinese currency and comes as the yuan is expected to be included in the International Monetary Fund's special drawing rights basket.

At present the exclusive currency basket is only made up of the US dollar, British pound, euro and Japanese yen.

Market watchers said that issuing bonds in China will make it much easier for local companies to get their hands on the currency, which can fuel commerce. In the past, local companies got yuan indirectly through Hong Kong and Taiwan.

In addition, they said the latest move can make it possible for local companies to issue their own yuan-based corporate bonds in China down the road. (Yonhap)