Stepping Stone for Expansion

Governor Kim Choong-soo of the Bank of Korea shakes hands with his Australian counterpart Glenn Stevens after signing the US$4.5 billion currency swap deal in Sydney on Feb. 23.
Governor Kim Choong-soo of the Bank of Korea shakes hands with his Australian counterpart Glenn Stevens after signing the US$4.5 billion currency swap deal in Sydney on Feb. 23.

 

South Korea made a currency swap agreement with Australia, allowing for exchange of up to 5 trillion won, or A$5 billion (US$4.5 billion), of their local currencies.

According to the Ministry of Finance and the Bank of Korea on Feb. 23, the central bank governor Kim Choong-su, who is attending the G20 finance ministerial and central bank governors’ meeting held in Australia, signed the currency swap deal with his Australian counterpart Glenn Stevens of the Australian Central Bank.

Finance Minister and Vice Prime Minister Hyun Oh-seok said in a press release that he expects the currency swap agreement to advance the economic development of both countries by bolstering bilateral trade, and that such cooperation in the currency sector is “mutually beneficial.” He added, “This is a very timely decision at a time when demand is growing for strengthened financial safety nets in the wake of the US Fed’s tapering of quantitative easing.” 

The currency swap deal will be effective for three years and could be extended by “mutual consent of both sides.” The agreement also ensures that trade between the two countries can continue to be settled in local currency even in times of financial stress. 

The Korean government has been seeking to utilize currency swap deals with other countries to settle payments for trade in a bid to reduce its dependency on the U.S. dollar. The currency swap deals Korea has made up to now amounts to around US$120 billion, including China (US$56 billion), Japan (US$10 billion), UAE (US$5.4 billion), Indonesia (US$10 billion), and Malaysia (US$4.7 billion).

Australia is South Korea’s seventh-largest trade partner with their bilateral trade volume reaching US$30 billion in 2013.

The Korean government expects this deal with Australia will be a stepping stone to expand other currency swap deals to developed economies.

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