Weighing Benefits
The currency swap deal between South Korea and China expired on October 10 and the extension of the agreement is still up in the air with the Chinese government weighing the benefits against the losses, that is, the internationalization of the RMB against economic retaliation for THAAD. The South Korean government is planning to continue to negotiate with China for extension or a new currency swap deal.
South Korea and China signed their first currency swap agreement, worth US$180 billion yuan, in April 2009. The size was doubled in October 2011 and the agreement was extended by three years in October 2014. The current total value of the agreement is slightly less than half of the total value of South Korea’s currency swap deals and the latter is reduced to approximately US$66 billion once the agreement between South Korea and China is not extended.
Many experts say the South Korean financial market is unlikely to be significantly affected even if the agreement is expired without extension. South Korea’s foreign exchange reserves reached US$384.84 billion at the end of August, ranking ninth in the world, and its net external assets hit an all-time high of US$423.1 billion at the end of June this year.
Still, the bilateral relations between the two countries can be significantly improved if the agreement is extended. On the part of China, the deal with South Korea is second in size only to that with Hong Kong.
Experts also pointed out that the South Korean government needs to expand its currency swap deals with key currency countries with the extension of the agreement with China still unclear. Earlier this year, the Japanese government unilaterally halted its negotiations for currency swap extension with South Korea after disputes on the comfort women issue.