Korea and China have been trying to settle their exports and imports in their own currencies in light of their growing trade.
China is Korea's largest trading partner, while Korea is China's third largest trading partner.
Last year, the trade volume between the two countries totalled 230-billion U.S. dollars, with Korea posting a 63 billion dollar surplus.
Up until now, only one-percent of Korean companies settle their trading bills with their Chinese partners directly in the Chinese yuan becuase only those already holding enough yuan could do so.
Under the currency deal, exporters and importers from the two countries will no longer have to pay transaction fees when converting the won to the yuan, and vice versa since there's no need to convert into the U.S. dollar.
The new arrangement is expected to cut Korean traders' business costs by at least three to five percent.
It will also help reduce potential exchange-rate risks.
A researcher at the Korea Capital Market Institute says the deal will make Korea's financial market more attractive to foreign investors as well.
"The deal with China is expected to enhance Korea's financial and industrial brand image with the growing use of the Yuan in international trade."
The global trade volume settled in the yuan amounted to 4.6 trillion yuan or 741-billion U.S. dollars last year, up 58 percent from a year earlier.
In addition to the currency deal, China is reportedly considering allowing Korean financial institutions to invest directly in China's capital markets by granting them investment quotas of up to 13 billion dollars.
China has similar quota deals with Britain, Hong Kong and Taiwan.
Kim Ji-yeon, Arirang News.