Korea Pushes for Unlimited Currency Swap Deal With US
By Lee Hyo-sik
Staff Reporter
The Korean government is looking to expand its $30 billion currency swap arrangement with the United States to further ease a dollar shortage here and stabilize the domestic foreign exchange market and borrow dollars freely from the U.S. to immunize itself from a possible future currency crisis similar to the 1997-98 Asian financial market debacle.
However, it will be difficult for the government to achieve the goal with the U.S. maintaining an unbounded swap pact with just the European Central Bank, Britain, Japan and Switzerland, which use other key international currencies ― the euro, pound and yen.
Deputy Strategy and Finance Minister Shin Je-yoon told The Korea Times Thursday that the government is examining ways of persuading the U.S. administration to scrap a ceiling on the bilateral currency swap agreement.
``The U.S. already did us a big favor by signing the unprecedented $30 billion swap deal with Korea in October. But we would like to expand the arrangement to help the nation better deal with the ongoing global credit crunch. It will also further boost economic ties between the two countries,'' Shin said.
But he admitted that it will be difficult to ask the U.S. to accept the proposition, citing the country deals with other nations and the ongoing transition of the U.S. administration adding that the unbounded swap pact with the U.S. is a long-term goal, not something that Korea can achieve in the near future.
Currently, the U.S. has signed currency swap arrangements with Korea, Australia, Sweden, Brazil, Mexico and Singapore worth $30 billion each. It also has $15 billion swap agreements with Denmark, Norway and New Zealand.
Many anticipate that if Korea signs an unbounded swap deal with the U.S., the nation would never again face a currency crisis. It will also make it easier for local banks and businesses to raise funds overseas at cheaper costs and help improve Korea's international credibility.
In October last year, the $30 billion swap deal with the U.S. greatly aided Korea, which had been grappling with a dollar shortage since the summer as foreign investors dumped local stocks and bonds and took dollars out of the country in the wake of the global credit squeeze.
It became more difficult for domestic lenders and companies to borrow dollars from abroad as financial firms around the world rushed to secure cash rather than extend credit, drying up the nation's dollar supply and sending the won-dollar rate to its highest level since the 1997-98 Asian financial crisis.
Additionally, Korea's current account balance has worsened on surging prices of oil and other imported commodities, while its outbound shipments have declined sharply as a result of falling overseas demand for Korean-made goods.
The expansion of the nation's currency swap arrangements with Japan and China worth $30 billion each in early December significantly boosted investor confidence in the local currency and financial market.