South Korea and China agreed to extend a currency swap, overcoming diplomatic conflicts. It seems that the two countries reached a dramatic conclusion by prioritizing economic benefits rather than political considerations.
Nobody knew whether or not the two countries would extend the currency swap due to their conflicts over the deployment of the THAAD System in Korea. But it draws much attention from people whether or not the decision to extend the currency swap will have a positive impact on making an improvement in bilateral relationships which have cooled off after the deployment of the anti-missile system.
Kim Dong-yeon, deputy prime minister and minister of finance and economy and Lee Ju-yeol, governor of the Bank of Korea attending the Finance Ministers of G20 Finance Ministers and Central Bank Governors Meeting in Washington, DC announced in a meeting with reporters on October 13 (Korean standard time) that Korea and China struck a deal to extend the currency swap.
The size of the contract is the same as US$56 billion in the previous contract. The contract period also remains the same -- three years.
A currency swap also is helpful for Korea in terms of trade and financial cooperation with China. This is because a currency swap itself has quite a big 'symbolic meaning' in terms of economic cooperation among nations.
As for China which promotes the internationalization of its yuan currency, it is advantageous for China to cut currency swap deals in yuan with many countries. So, China has nothing to lose with this extension decision. By sizes of currency swaps with the People’s Bank of China, Korea’s contract is the second largest after Hong Kong (400 billion yuan).
"Even if China concludes a currency swap deal right now, it will not be burdened as it is not very unlikely that the swap will not be implemented in the short term,” said professor Lee Si-wook, a professor at the KDI Graduate School of International Policies. “China chose a very easy card after judging that they did not need to make unnecessary troubles by intentionally breaking down negotiations.
Some said that the delay of negotiations between Korea and China were blamed on political conflicts between Korea and China. When a US$10 billion currency swap with Japan ended in 2015, diplomatic conflicts over Dokdo, Korea’s small island in the East Sea were pointed out as the main cause of the breakdown of negotiations.
There is also a careful analysis to regard the extension agreement as a signal to improve bilateral relations between Korea and China. However, government authorities are wary of an expanded interpretation that links the deal to political conflicts.