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Wednesday, July 24, 2024

Korea and Japan re-establish $10 billion currency swap deal

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President Yoon Suk Yeol, left, Japanese Prime Minister Fumio Kishida, shake hands during the G20 meeting held in India in September. [YONHAP]
President Yoon Suk Yeol, left, Japanese Prime Minister Fumio Kishida, shake hands during the G20 meeting held in India in September. [YONHAP]

Korea and Japan officially struck a $10 billion currency swap deal Friday. The announcement comes eight years after the end of the two countries’ former agreement, which aimed to offer liquidity support to both countries’ financial markets in times of crisis.

The swap line was established in U.S. dollars and will last for three years, according to the Bank of Korea (BOK) and the Finance Ministry.

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The decision was born out of the bilateral discussion between Finance Minister Choo Kyung-ho and his Japanese counterpart, Shunichi Suzuki, that took place back in June.

The swap deal comes with profound diplomatic implications, in addition to its economic effects; it is considered representative of a thaw in the two neighboring countries’ relations.

During the June meeting, Finance Minister Choo said the currency swap has shaped the establishment of solidarity and cooperation among Korea, the United States and Japan, given that the Japan has a permanent currency swap line with the U.S. Federal Reserve.

The improved foreign exchange liquidity and a safety net among advanced nations will expand to Korea’s financial and foreign exchange market, Choo added.

“The fact that the currency swap was restored in eight years is more meaningful than the swap size,” the ministry said. “The swap line was agreed on in dollars because it is a resumption of the currency swap that was suspended in 2015.”

Seoul’s first currency swap line with Tokyo was signed in 2001. The last swap expired in 2015 during the administration of former President Park Geun-hye.

Talks of a new swap line were suspended in 2017 when the relationship between the two countries soured over Korean victims of forced labor during World War II. The relationship was further strained in 2019, as Japan imposed import restrictions on Korea in retaliation against the Korean court rulings that had ordered Japanese companies to compensate Korean victims.

Korea is currently bolstering its network of currency swap deals. Korea and Australia, for instance, renewed their agreement in February of this year with an increased exchange amount of 9.6 trillion won.

The country’s currency arrangement with the U.S. has not been restored after the previous $60 billion swap contract expired in 2021.

The BOK and the U.S. Federal Reserve signed a currency swap contract in March 2020 to ease financial anxiety from the coronavirus pandemic and had since extended the deal three times.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]