South Korea and Japan have agreed to extend their $10 billion currency swap agreement, which is set to expire this year. The two countries' foreign exchange authorities recognized the importance of maintaining the currency swap as a symbol of financial cooperation and collaboration, despite having sufficient foreign currency liquidity.
On October 15, Deputy Prime Minister and Minister of Finance Lee Hyung-il met with Japan's Finance Minister Satsuki Katayama in Bangkok, Thailand, where they reached an agreement to extend the Korea-Japan currency swap for another three years, maintaining the current amount of $10 billion until November 2029.
The Korea-Japan currency swap is a mechanism that allows the two countries to exchange currencies in times of emergency, such as a foreign exchange crisis, to secure foreign currency liquidity. The swap operates on a dollar exchange basis, where South Korea provides won and borrows dollars held by Japan, or Japan provides yen and South Korea borrows dollars.
This extension agreement is significant for maintaining a financial safety net. Both sides acknowledged that while their foreign exchange authorities have sufficient foreign currency liquidity, the currency swap symbolizes financial cooperation and collaboration between the two nations.
The two countries first established the currency swap in 2001, and it was expanded to $70 billion during the global financial crisis in 2011. However, as relations between South Korea and Japan soured, the agreement was reduced, and the last remaining $10 billion contract expired in February 2015, leading to a suspension of the swap.
Subsequently, in June 2023, during the eighth Korea-Japan finance ministers' meeting, the two countries agreed to restore the currency swap. In December of the same year, the Bank of Korea and the Bank of Japan signed a $10 billion agreement, resuming the currency swap for the first time in eight years. The contract was set for a three-year term and was approaching its expiration this year.
In addition, the two countries agreed to hold the next finance ministers' meeting in South Korea as soon as possible, following the agreement made during the tenth Korea-Japan finance ministers' meeting held in Tokyo in March.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.