Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Currency swap with US urged as last resort against worst-case scenario
An employee at Hana bank arranges bundles of U.S. dollar bills at its headquarters in Seoul, Aug. 9. Yonhap
By Lee Min-hyung
By Lee Min-hyung
Korea should immediately sign a currency swap agreement with the United States, experts said Thursday.
They said the Bank of Korea (BOK) needs to make a preemptive move amid escalating economic and financial uncertainties here and abroad represented by the soaring won-dollar exchange rate.
“The Korean government and the central bank are advised to be more active to clinch the currency swap deal with the U.S. Fed, as part of efforts to brace for a potential economic crisis,” Yonsei University economist Sung Tae-yoon said. “Authorities should not sit on their hands due to the escalating uncertainty in the global macroeconomic environment.”
The concern came amid the sharp weakening of the Korean won against the U.S. dollar. The Korean currency weakened to 1,440 won per dollar on Wednesday for the first time in more than 13 years.
But the BOK and financial authorities are voicing their consensus that now is not the right time for a currency swap deal with the world's largest economy.
BOK Governor Rhee Chang-yong recently said Korea does not theoretically need the deal for the time being. Finance Minister Choo Kyung-ho also reiterated the government's reluctance to rush into any swap deal with the U.S., saying that financial authorities will take a wait-and-see approach for now. This is because Korea is not the only country suffering from the depreciation of the local currency amid the strengthening dollar, he said.
Other experts, however, also said the government should make a “special and strong” request to the U.S. on the swap deal.
“The Korean government is siding with the U.S. in a number of major diplomatic decisions, as was shown by the so-called Chip 4 alliance which involves the two countries, Japan and Taiwan,” Kim Dae-jong, a professor of business administration at Sejong University, said. “But now that Korea is facing a tough situation in dealing with the soaring exchange rate, we need to strongly request the currency swap deal with the U.S. right now.”
“Former Finance Minister Kang Man-soo went to the U.S. to meet with his U.S. counterpart and underscore the urgent need for a currency swap deal back in the 2008 global financial crisis,” Kim said. “This is not the case now. The government and relevant authorities are still taking an easygoing attitude despite escalating concerns over the weakening local currency.”
The won-dollar exchange rate is displayed at a currency exchange counter in Seoul, Thursday afternoon. Yonhap
The main opposition Democratic Party of Korea (DPK) also stepped up criticism of the incumbent administration for not taking immediate action to stabilize the volatile financial circumstances here.
Lee Jae-myung, chairman of the party, urged the government to push for a timely swap deal with the U.S.
“The government should preemptively express its strong willingness to minimize any possible repercussions from a crisis,” Lee said.
The messages of warning from experts and political circles came amid the rapid depreciation of the Korean won against the dollar. The exchange rate closed at 1,438.9 won per dollar, down 1 won from the previous day. This is an increase of 84 won from Sept. 1 when the Korean currency stood at 1,354.9 won per dollar.
Korean stocks have also entered a phase of adjustment on the Fed's ever-more aggressive gesture for monetary tightening. The benchmark KOSPI closed at 2,170.93 points, up 0.08 percent during the same period. On the previous trading day, the main bourse fell below the 2,200-point mark for the first time in 26 months.
Amid the escalating fears of a stock market slump here, financial authorities decided Wednesday to mobilize a stock-market-stabilization fund soon. This will be the first time that the government introduces the measure since March 2020 when the stock market collapsed to a worrying level of around 1,400 points due to the coronavirus pandemic. At that time, authorities formed the fund worth 10.7 trillion won, but did not use it, as local stocks soon bounced back after a steep decline.