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With Seoul and Washington signing a currency swap agreement Wednesday, Korea can borrow up to US$30 billion in exchange for won-deposits in the U.S. Federal Reserve Bank without offering collateral until April 30 next year. The Bank of Korea can then provide short-term dollar loans to domestic financial institutions, giving the dollars back to the Fed after borrowers repay their loans.
Of course, the central bank won't need to borrow dollars except in an emergency. A government official said, "Since we hold sufficient dollar reserves, we won't actually have to borrow dollars from the U.S. We pointed this out to the U.S. several times."
The agreement expires in April. Strategy and Finance Minister Kang Man-soo said the U.S. seems to expect that the financial crisis will die down around then.
The deadline for European nations' guarantee of inter-bank borrowings is the end of June, suggesting a widespread belief in international financial circles that the crisis will die down in the first half of next year. If it continues after April, it will be possible to extend the currency swap agreement. Precedents show that it is possible to increase the amount as well.
A Strategy and Finance Ministry official said, "It's difficult to enter into a new deal. But once you've struck it, it's easy to increase the amount."
(englishnews@chosun.com )
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