The value of the new currency swap agreement is twice as much as the South Korea-U.S. swap line agreed in October 2008 in the heat of the global financial crisis.
South Korea’s currency swap agreement with the United States will help stabilize the domestic foreign exchange market hit by the global financial turmoil, Seoul’s financial authorities said on March 20.
Seoul struck a US$60 billion currency swap deal with Washington on March 19, which will be in place for at least six months. It is the second of its kind that South Korea signed with the United States since 2008.
Bank of Korea Gov. Lee Ju-yeol told reporters that the agreement is expected to help ease the instability of the domestic foreign exchange market. Dollar demand soared in global financial markets on the spread of the coronavirus, resulting in the won’s plunge due to a dollar shortage on the domestic market.
Governor Lee emphasized South Korea has an optimum level of foreign exchange reserves, independently of the swap deal. Seoul’s foreign exchange reserves came to $409 billion as of the end of February.
Meanwhile, Deputy Finance Minister Kim Yong-beom stressed that the value of the new currency swap agreement is twice as much as the South Korea-U.S. swap line agreed in October 2008 in the heat of the global financial crisis.
The vice minister Kim also called on investors and other economic actors to remain calm amid growing market uncertainty sparked by the coronavirus pandemic. Besides, the government will take drastic measures to stabilize the market and make all-out efforts to cushion people’s lives from the fallout of the outbreak.
The swap deal came after escalating worries over a coronavirus-induced global economic recession sent the South Korean currency tumbling against the U.S. dollar. The Korean unit plunged 1,285.7 won on March 19, the lowest in over a decade. In the morning session on March 20, the won rose to change hands at 1,263.1 won/USD in early trading.
President Moon Jae-in unveiled a 50 trillion-won (nearly US$40 billion) package on March 19 to prevent small businesses from going bankrupt and ease their financial anxiety amid growing fears of a global recession and credit crunch.
Early this week, Seoul also took a series of steps to inject more liquidity into the financial system and announced an extra budget worth 11.7 trillion won. The central bank also cut its policy rate by half a percentage point to a record low of 0.75 percent to support the economy.