South Korea yesterday announced an increase totaling almost US$45 billion in its currency swap deals with China and Japan, in hopes of calming the financial turmoil that has roiled its economy.
The Bank of Korea said it reached a swap arrangement worth 38 trillion won (US$27.6 billion) with the People’s Bank of China, in addition to the current arrangement worth US$4 billion.
In a statement it also announced an agreement with the Bank of Japan to expand their yen-won swap arrangement to the equivalent of US$20 billion from the current US$3 billion.
South Korea and Japan also have an existing credit line of up to US$10 billion in case of emergency.
China’s central bank said the deal would boost confidence regionally and worldwide, and it was considering similar arrangements with other countries.
“This is the first currency swap deal China’s central bank [has entered] into with another central bank since the outbreak of this financial crisis,” the People’s Bank of China said in a statement on its Web site.
“When conditions are ripe, we will actively consider entering into similar swap deals with the central banks or monetary authorities of other nations or territories to preserve regional and global financial stability,” it said.
The move will further ease pressure on the Korean won, which lost almost half of its value against the dollar this year until Seoul agreed to a US$30 billion swap line with the US Federal Reserve in late October.
The announcement comes on the eve of a rare joint meeting between the leaders of China, Japan and South Korea.
They will meet today in the Japanese prefecture of Fukuoka to consider how best to cushion Asia from the global economic crisis.
The Bank of Korea said the three-year deal with China could be expanded through consultations, while the increased arrangement with Japan would continue until April.
Seoul has already drawn on its deal with the Fed, pumping a total of US$7 billion into local banks to ease a shortage of the US unit amid the global credit crunch.
The expanded swap deals “with China and Japan will help ease some jitters in the financial market,” Jeon Seung-ji, a currency analyst at Samsung Futures, told Yonhap news agency. “But as the news has already been factored into the market, the impact of the won’s gain will be limited.”
The won finished yesterday at 1,372.5 to the dollar, down 14 from Thursday’s close.
South Korea has the world’s sixth-largest currency reserves but these have been rapidly dwindling in recent months as authorities intervene to support the won and supply liquidity.
At the end of last month they totaled US$200.51 billion, compared with US$212.25 billion a month earlier.