Korea and Japan have agreed to revive a $10 billion currency swap line on Thursday after an eight-year hiatus.
The swap agreement was signed during a bilateral finance ministerial meeting in Tokyo, the first such dialogue since 2016.
The swap line was established in U.S. dollars and will last for three years.
Finance Minister Choo Kyung-ho said the currency swap has shaped the establishment of solidarity and cooperation among Korea, the United States and Japan, according to a Ministry of Economy and Finance statement. The improved foreign exchange liquidity and a safety net amongst the 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.”
“The currency swap is a strong signal that indicates strengthening cooperation between the two countries, at least in terms of finance and economy,” said Chang Min, a senior research fellow at the macroeconomic research division of the Korea Institute of Finance.
“The fact that it is a dollar basis is symbolic. It will be like opening a swap line with the Fed,” Chang added.
Japan has a permanent currency swap line with the Federal Reserve.
Korea’s foreign reserves came to $420.98 billion in May, down $5.7 billion from a month earlier, according to the Bank of Korea.
The swap line is more “important in terms of normalizing the international relationship between Korea and Japan than for its economic factors, like stabilizing currency exchange,” the Bank of Korea Gov. Rhee Chang-yong told reporters during a press conference on June 19.
Choo and his Japanese counterpart Shunichi Suzuki agreed to cooperate on more diverse levels, including the partnership between the Export-Import Bank of Korea and the Japan Bank for International Cooperation on building supply chain networks and achieving global carbon neutrality.
They also agreed to hold the ninth finance ministerial meeting in Korea in 2024.
Seoul’s first currency swap line with Japan was signed in 2001. The last swap expired in 2015.
Talks over 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 against Korea in retaliation against the Korean court rulings that ordered Japanese companies to compensate the Korean victims.
Korea was removed from the trade “white list” of trusted trading partners after Tokyo imposed export restrictions on three key semiconductor materials to Korea. Seoul had also removed Tokyo from its own white list and filed a complaint with the World Trade Organization against the export curbs.
Japan on Tuesday announced it has restored Korea to its white list, nearly four years after the initial exclusion. The amendment will become effective from July 21. Korea announced that it added Japan back to its white list in April.
BY JIN MIN-JI [firstname.lastname@example.org]