By Kang Seung-woo
Amid global economic uncertainties, Korea’s efforts to secure extra liquidity are reaching China, as the two sides are likely to sign a currency swap agreement.
The speculation comes as the finance minister did not reject questions about such an arrangement with China, the world’s largest foreign-exchange reserve holder.
If the deal is signed, it will be the second between the two countries following a 2008 agreement.
“I cannot say anything on the issue,” Bahk Jae-wan, the minister of strategy and finance, said at the Korea-Latin America business forum.
The minister also ducked questions that the possible currency swap was discussed with his Chinese counterpart at the annual International Monetary Fund (IMF) and World Bank meeting held in Washington last month.
Currency swaps strengthen financial safety nets by allowing central banks to exchange currencies with each other when there is a liquidity crunch.
The Seoul Economic Daily, a sister paper of The Korea Times, also reported on the same day that Korea is seeking to expand its currency swap with the world’s second-largest economy from $26 billion to $70 billion, citing an official at the foreign exchange authorities.
According to the official, Bahk suggested a currency swap deal with Japan and China in Washington. Korea struck an agreement with Japan Wednesday during a summit between President Lee Myung-bak and Japanese Prime Minister Yoshihiko Noda.
According to the deal, the two sides will augment the $3 billion won-yen swap facility to $30 billion and open a new $30 billion U.S. dollar-local currency arrangement, the Bank of Korea (BOK) said.
Observers say that as the Korea-Japan agreement was called for in Washington, a proposal to China may also have been drawn up there.
Korea, Asia’s fourth-largest economy, is one of the countries that were hit hard by the global financial crisis in 2008, when its stock and currency markets tumbled on concerns that dollar funding could dry up amid ever-deepening financial turmoil.
As a result, the nation agreed to a $30 billion currency swap deal with the United States later the same year, helping to ease dollar shortage woes. The deal expired once the market stabilized.
The possible currency swap with China will boost Korea’s available foreign exchange reserve that stood at $303.4 billion as of the end of September to $462.6 billion, including $70 billion won from the Korea-Japan currency swap and $19.2 billion from the Chiang Mai Initiative Multilateralization (CMIM).