For Financial Stability
The Bank of Korea and the Ministry of Strategy & Finance announced on February 8 that the five billion AUD currency swap agreement between South Korea and Australia, which is to expire on February 22 this year, will be extended until February 7, 2020 with its size doubled.
“The current swap agreement, which has been expanded to an amount equivalent to US$7.7 billion and can be extended again in 2020, will help enhance the financial safety of South Korea,” said the South Korean government.
The total value of such agreements of South Korea has increased from US$119 billion to US$122 billion as a result of the extension. Those agreements include bilateral ones with China (US$56 billion), Malaysia (US$4.7 billion) and Indonesia (US$10 billion) as well as the Chiang Mai Initiative Multilateralization (CMIM) worth US$38.4 billion. According to the government, its US$5.4 billion agreement with the United Arab Emirates, which expired in October last year, is likely to be extended with both countries currently checking the details of the contract.
The South Korean government is expecting that the extension of the agreement with Australia will contribute to trade relations and financial cooperation between South Korea and Australia. At present, South Korea is the fourth-largest trade partner for Australia and Australia is the eighth-largest trade partner for South Korea. As of March last year, South Korean financial institutions had an Australian dollar exposure of 4.36 billion AUD and the value was 10.3 trillion won the other way around, up 30.5% and 27% from the time when they signed their first currency swap agreement, respectively. Won-denominated assets account for 5% of the foreign exchange reserve of the central bank of Australia and this ratio is close to those of pound-, yuan- and yen-denominated assets.