Korea will not renew the expiring current swap deal with Japan as the country's capacity to deal with external risks has improved and the overall financial market conditions have been stabilizing, the finance ministry said Tuesday.
South Korea and Japan signed $13 billion worth of a current swap contract in 2008 to better prepare for the global financial crisis, and it extended the swap line temporarily to $70 billion last year. Under the deal, Seoul can exchange its own currency with safer assets such as the dollar and the yen.
If the expanded deal expires as planned at the end of this month, the currency swap deal will come down to $13 billion, the ministry said.
"The Ministry of Strategy and Finance of Korea and the Bank of Korea announce ... that the expiration of the temporary measure to increase the maximum amount of the bilateral currency swap arrangements as of Oct. 31, 2012, as scheduled," the ministry said in a statement jointly released by its Japanese counterpart.
"Given the stable financial markets and the sound macroeconomic conditions of both countries, they concluded that the extension of the increase of the bilateral swap arrangements is unnecessary," it added. "They also agreed that they will cooperate in an appropriate manner as the need arises, while closely monitoring the global economic conditions as well as those of both countries."
The move comes amid growing speculation that both countries will not extend their currency swap line after Tokyo brought the economic deal into the diplomatic fray brewing between the two countries in recent months.
Angered by President Lee Myung-bak's unprecedented visit to the easternmost islets of Dokdo in mid-August, Japanese officials have been saying that their government might be considering adjusting the terms of the currency swap deal with South Korea. That could include a decision on whether to extend the deal or not before it expires in late October.
The finance ministry here said that the decision not to extend the maturing swap deal has nothing to do with the diplomatic tensions, but it is totally based on "pure economic" considerations. (Yonhap)
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