 |
| Korea's Finance Minister Yoo Il-ho, left, shakes hands with his Japanese counterpart Taro Aso after their meeting at the Government Complex in central Seoul, Saturday. / Yonhap |
By Nam Hyun-woo
Korea and Japan's finance ministers agreed on Saturday to launch talks on resuming their bilateral currency swap deal, according to the Ministry of Strategy and Finance, in a bid to have another safety net for stability in the financial market amid the rising possibility of a U.S. rate hike.
Korea's Finance Minister Yoo Il-ho held a meeting with his Japanese counterpart Taro Aso in Seoul and proposed signing a currency swap deal involving an equivalent amount between the two countries as a "token of their strengthened bilateral economic ties." They agreed to negotiate details, including a timeframe and the amount, soon.
In a joint statement, the ministers recognized that "the global economy is on a gradual recovery path but remains weaker than desirable" and the swap would "contribute to regional financial stability."
"Korea proposed the talks and Japan agreed," Yoo told reporters after the meeting. "It will take months before the currency swap actually resumes."
Since 2001, the countries maintained a $2 billion currency swap and expanded it to $70 billion in 2011. A year later however, the value of the deal was cut back to $13 billion and then reduced to $10 billion in 2013, amid tensions over territorial and historical issues. The 14-year-old deal ended in February last year.
The Korean finance ministry said in a statement that the government made the suggestion amid increasing financial uncertainty and volatility after Brexit. The ministry also said Federal Reserve Chairwoman Janet Yellen's remarks at Jackson Hole led to the proposal.
Yellen said in her annual speech in Wyoming on Friday that "the case for an increase in the federal funds rate has strengthened in recent months."
Given the yen's power in the global financial market, questions have been raised about the swap deal possibly giving Japan the diplomatic leverage of claiming the swap as "beneficial to Korea." Also, some wonder about the necessity of the swap because Korea's foreign exchange situation is sound, with no warning signs.
Before the meeting, the government said a currency swap deal was not on the agenda, but made a surprise proposal.
"In terms of current account balance and foreign exchange reserves, the Korean economy's external soundness seems to be solid," Yoo said. "However, the government wants to sign currency swap deals with as many countries as possible to reduce uncertainties."
The ministry also said the proposal was about a "new" currency swap because the previous one was imbalanced, with Korea receiving $10 billion and Japan receiving $5 billion.
Experts said the agreement is an "insurance" to cope with a potential U.S. rate hike and increased exchange rate volatility, but questioned whether it was necessary.
"Korea is sensitive to foreign exchange outflow," said Prof. Kwon Won-soon at the Economics Department of Hankuk University of Foreign Studies. "So the government is keen on coming up with preemptive measures."
"However, Korea's economy has no problem with current account and foreign exchange reserves. The currency swap talks are aimed at bilateral cooperation and are like insurance for uncertainties. The question is why Korea proposed the deal. It may send a wrong signal outside of Korea that the country's economy is in trouble."
According to the Bank of Korea, Korea's foreign exchange reserve stood at $371.38 billion at the end of July. The country is in the Chiang Mai Initiative, a multilateral currency swap arrangement among ASEAN, China, Japan, and Korea.
Also, Korea and China agreed to extend their 64 trillion won ($57.4 billion) currency swap deal in April.
![[INTERVIEW] 'One Day Off' star Lee Na-young, director on creating subtle, feel-good series](https://img.koreatimes.co.kr/upload/thumbnailV2/796618f56a44402eabe81fe4530ab988.jpg/dims/resize/178/optimize)
![[INTERVIEW] Lee Jun-hyuk unrecognizable in 'The Roundup: No Way Out'](https://img.koreatimes.co.kr/upload/thumbnailV2/77a9da6df7da4284adbee249a87307c1.jpg/dims/resize/178/optimize)
