Korea is seeking currency swap deals with Australia and a handful of other resource-rich countries in the Asia-Pacific region, Deputy Prime Minister for Economic Affairs Hyun Oh-seok said Monday.
Currency swaps can be used to stabilize economies in a financial crisis, with the country facing economic woes borrowing from the treasuries of the other government using its own currency as collateral.
Korea has recently signed a string of such deals with Indonesia, Malaysia and the United Arab Emirates. The aim is to ensure foreign exchange liquidity.
A senior government official said, "The recent series of currency swaps with foreign countries is aimed at strengthening the safety net in preparation for an emergency."
"Under some deals, Korea will probably have to provide liquidity support to the partner country, while under others Korea is the likely beneficiary, but overall it will turn out to be beneficial for us," the official added.
Thus in the deal with Indonesia, Korea is more likely to end up supporting Jakarta, but deals with countries with high credit ratings like Australia and the U.A.E. in turn provide a safety net for Korea.
The Australian dollar is used on a near-equal footing with the US dollar and euro in the international financial market due to its fifth-place ranking in terms of global foreign exchange transactions.