Seoul, Tokyo ink $10 bn currency swap deal

South Korea’s Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, right, shakes hands with Shunichi Suzuki at the finance ministry in Japan ahead of the 8th Korea-Japan Finance Ministers’ Meeting held in Tokyo on June 29. [Photo provided by Ministry of Economy and Finance]

The finance ministers of South Korea and Japan have met after a gap of seven years and reached an agreement to reinstate the currency swap arrangement, which will serve as a safety net for the foreign exchange market. This agreement will involve a $10 billion swap in U.S. dollars, with a three-year duration.

The revival of economic cooperation between the two countries, following the summit meeting and the restoration of the whitelist, has now gained further momentum with the resumption of the currency swap arrangement.

On Thursday, South Korea’s Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho conducted the 8th Finance Ministers’ Meeting alongside his Japanese counterpart Shunichi Suzuki at the finance ministry in Japan. During this pivotal encounter, both ministers displayed a unified front and agreed to restore the currency swap, which had been dormant since 2015.

A currency swap entails a contractual agreement that empowers a nation to temporarily borrow currency from another country at a predetermined exchange rate. This mechanism ensures the availability of foreign currency during periods of volatile foreign exchange fluctuations or similar circumstances. South Korea will deposit Korean won with Japan, enabling it to efficiently access U.S. dollars from Japan in times of crisis.

Such a structure significantly enhances South Korea’s ability to secure emergency funds. Deputy Prime Minister Choo expressed his conviction, saying that the South Korea-Japan currency swap “establishes a robust framework for cooperation in the foreign exchange and finance domains among countries that share universal values, such as South Korea, the U.S., and Japan.” He further emphasized that this expansion of liquidity safety nets among advanced market economies extends to bolster the stability of South Korea’s financial and foreign exchange markets.

In a simultaneous development, the Export-Import Bank of Korea and the Japan Bank for International Cooperation (JBIC) sealed a memorandum of understanding on collaborative projects in third countries. The MOU aims to foster the development of infrastructure projects in third nations, leveraging corporate participation and simultaneously bolstering the establishment of secure economic supply chains.

The finance ministers expressed their desire to intensify cooperation, with a firm agreement to convene the 9th South Korea-Japan Finance Ministers’ Meeting in South Korea next year. The finance ministers’ meeting had been suspended since August 2016 amid escalating tensions between the two nations due to the sensitive issue of forced labor compensation during the previous Moon Jae-in administration. However, under the current administration led by President Yoon Suk Yeol, bilateral relations between the two countries have witnessed a remarkable revival, particularly in the domains of trade, economics, and finance, following the successful summit held in March.