Currency deal with US provides psychological boost
South Korea has become one of nine countries that have signed currency swap agreements with the United States as the spread of COVID-19 is hitting global financial markets hard.
The Bank of Korea (BOK) struck a $60 billion swap deal with the U.S. Federal Reserve, Thursday, which will be valid for six months. The Fed also signed deals with the central banks of Brazil, Mexico, Australia, Singapore, Sweden, Denmark, Norway and New Zealand.
The deals will not be a silver bullet, but will help stabilize the markets around the world to some extent as, back in 2008, similar deals led by the U.S. proved effective in restoring calmness during the global financial crisis. Then, the BOK and the Fed signed a $30 billion deal, which expired in February 2010 after being extended twice. Hopefully, the latest deals will help ease jitters among market participants and help the dollar-dependent financial systems of many countries, including South Korea, continue to function.
The signing is particularly special for South Korea because it represents the strategic importance of this country to the U.S. economy as well as its international status. It wouldn't have been possible without efforts by Economy and Finance Minister Hong Nam-ki and BOK Governor Lee Ju-yeol. Hong recently sent a handwritten letter to U.S. Treasury Secretary Steven Mnuchin to ask for a quick currency swap deal between the two countries. Lee also voiced the need for such a deal while meeting Fed Chairman Jerome Powell last month on the sidelines of a gathering of finance ministers and central bank governors of G20 countries in Riyadh, Saudi Arabia. They deserve praise for making the deal happen.
On Friday, Governor Lee said South Korea already has an optimum level of foreign exchange reserves, but the latest deal with the U.S. will help restore investor confidence, and ease instability on the domestic currency market. Vice Finance Minister Kim Yong-beom, describing the agreement as a "reliable cushion," emphasized that the government may take more drastic measures to further stabilize the financial market.
In accordance with the currency deal with the Fed, the BOK plans to inject more dollars into the local market to help ease a growing dollar shortage. South Korea also has bilateral currency swap arrangements worth $193 billion with countries including Australia, Canada and China as well as the 10 ASEAN member nations.
Despite the deal with the U.S., it will be inevitable for investor sentiment to remain weak for the time being as the new coronavirus is ravaging the world. Short-term fluctuations will continue. So Vice Finance Minister Kim was right when he said Friday it is vital for all market participants not to be swept by panic and to remain cool-headed to ride out this crisis.
South Korea has become one of nine countries that have signed currency swap agreements with the United States as the spread of COVID-19 is hitting global financial markets hard.
The Bank of Korea (BOK) struck a $60 billion swap deal with the U.S. Federal Reserve, Thursday, which will be valid for six months. The Fed also signed deals with the central banks of Brazil, Mexico, Australia, Singapore, Sweden, Denmark, Norway and New Zealand.
The deals will not be a silver bullet, but will help stabilize the markets around the world to some extent as, back in 2008, similar deals led by the U.S. proved effective in restoring calmness during the global financial crisis. Then, the BOK and the Fed signed a $30 billion deal, which expired in February 2010 after being extended twice. Hopefully, the latest deals will help ease jitters among market participants and help the dollar-dependent financial systems of many countries, including South Korea, continue to function.
The signing is particularly special for South Korea because it represents the strategic importance of this country to the U.S. economy as well as its international status. It wouldn't have been possible without efforts by Economy and Finance Minister Hong Nam-ki and BOK Governor Lee Ju-yeol. Hong recently sent a handwritten letter to U.S. Treasury Secretary Steven Mnuchin to ask for a quick currency swap deal between the two countries. Lee also voiced the need for such a deal while meeting Fed Chairman Jerome Powell last month on the sidelines of a gathering of finance ministers and central bank governors of G20 countries in Riyadh, Saudi Arabia. They deserve praise for making the deal happen.
On Friday, Governor Lee said South Korea already has an optimum level of foreign exchange reserves, but the latest deal with the U.S. will help restore investor confidence, and ease instability on the domestic currency market. Vice Finance Minister Kim Yong-beom, describing the agreement as a "reliable cushion," emphasized that the government may take more drastic measures to further stabilize the financial market.
In accordance with the currency deal with the Fed, the BOK plans to inject more dollars into the local market to help ease a growing dollar shortage. South Korea also has bilateral currency swap arrangements worth $193 billion with countries including Australia, Canada and China as well as the 10 ASEAN member nations.
Despite the deal with the U.S., it will be inevitable for investor sentiment to remain weak for the time being as the new coronavirus is ravaging the world. Short-term fluctuations will continue. So Vice Finance Minister Kim was right when he said Friday it is vital for all market participants not to be swept by panic and to remain cool-headed to ride out this crisis.
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