March 18, 2020 10:27
The coronavirus epidemic has raised fears that Korea has neglected currency-swap agreements with other countries that would allow it to raise cash more easily in a crisis.
Korea has allowed a currency-swap deal with Japan and the U.S. to lapse, though similar agreements are in place with some other countries like Australia, Canada, China, Indonesia and Malaysia.
Chung Duck-koo, a former minister of commerce and industry, said "We won't see an immediate exodus of foreign capital, because the U.S. has drastically slashed interest rates, but if the coronavirus epidemic spreads further and China's economy makes a soft landing, Korea could suffer a major crisis."
"If that happens, we could see an exodus of foreign capital, so we have to hurry to forge the biggest possible currency-swap agreement with the U.S.," he added.
Korea signed a US$30 billion currency-swap agreement with the U.S. in October of 2008, when the won weakened to W1,500 against the dollar and fears of a financial crisis escalated. But the agreement expired in February 2010 and was not renewed.
The currency-swap agreement with Japan lapsed in 2015.
The Wall Street Journal recently urged the Fed to forge currency-swap deals to maintain financial market stability.
"The temporary swap lines instituted between the Fed and the central banks Brazil and Korea in 2008 could be restarted, and widened to include many other nations... It could extend these swap lines to other countries with markets in tumult like Australia, [Korea], China, Taiwan and Hong Kong," it wrote.
The Bank of Korea on Tuesday declined to respond directly to calls for more such deals but said it is intent on "bolstering financial safety nets."
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