U.S. should reconsider its currency swap with Korea

In an unusual move to stem the depreciation of the South Korean won, U.S. Treasury Secretary Scott Bessent stepped in with verbal intervention, explicitly mentioning the Korean economy.

However, the impact was limited.

Beyond weak fundamentals – such as a policy rate gap of more than 1 percentage point versus the United States and sluggish economic growth – a major headwind is the large-scale investment Korea must begin paying to the U.S. starting this year.

Annual U.S.-bound investments of up to $20 billion are set to boost dollar demand and prices, putting further downward pressure on the won.

Secretary Bessent disclosed on his social media account on Wednesday, local time, that he recently met with Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol in Washington, D.C., noting that the recent weakness of the won does not align with Korea’s economic fundamentals.

Following this verbal intervention, the won surged by more than 10 won in early trading on Thursday.

However, much of the gain was pared back during onshore trading, with the currency closing at 1,469.7 won per dollar, up 7.8 won from the previous daytime close.

The market’s underwhelming response appears to reflect mixed messages – while remarks supported a stronger won, they were coupled with language that seemed to pressure Korea to implement a full and faithful trade agreement.

Under the deal, Korea must pay a total of $200 billion in cash installments starting this year in exchange for reciprocal tariff reductions. The annual transfer of up to $20 billion risks tightening dollar liquidity.

Extraordinary measures are needed to reverse the current exchange rate trend.

One such option is a bilateral currency swap, which was discussed last year but ultimately fell through.

A currency swap, under which the two countries exchange currencies at a pre-agreed exchange rate, would serve as a powerful bulwark against fears of dollar shortages.

Yet even after the Korea-U.S. summit, Washington did not accept Korea’s request for an unlimited swap line.

It is encouraging that Secretary Bessent has personally stepped in to help stabilize the won.

The U.S., too, will want Korea to fulfill its commitment of investing over $20 billion annually as promised.

For those commitments to be executed smoothly, a currency swap has become not a matter of choice but a necessity. The Trump administration should give this issue a forward-looking reexamination.