Counting masks as dollars vanish

Yi Jung-jae
The author is a columnist of the JoongAng Ilbo.

Real skill shines under grave challenges. The Moon Jae-in administration so far has failed in coping with the coronavirus crisis. The leader’s language must change during a crisis. It should be clear and specific, but President Moon speaks too figuratively. Vowing to catch two birds — economy and quarantine — with one stone or urging “unprecedented” actions is not reliable. The rhetoric lacks the essential “how.” A commander-in-chief in crisis times should change. He must prioritize policy actions and check the basics. His urgent task is a restoring of the currency swap with the United States.

A swap in sovereign currencies is important for several reasons. First of all, it can symbolize the recovery of the relationship between the two allies. Money is the bloodline. Washington does not hand out its money to any state easily. It only strikes currency swap agreements with economic powers or allies. If Seoul can renew the agreement, the misunderstanding about soured bilateral relationship under the liberal Moon administration can be reversed. Improved ties with Washington will also help strengthen Seoul’s position against Beijing and Pyongyang. Moreover, the feat will work in favor of the ruling Democratic Party in the April 15 parliamentary elections.

The dollar is the safest haven during times of crisis. The coronavirus pandemic has been wreaking havoc on asset values around the world. Stock prices, gold prices, bonds and cryptocurrencies all tumbled. People have faith only in cash — or the dollar.

Timing could not be better. Even the Wall Street Journal (WSJ) has advised the U.S. Federal Reserve to extend currency swaps with other central banks, including the Bank of Korea (BOK). The newspaper was skeptical of the United States entering a currency swap with Korea during the 2008 global financial crisis, noting that Seoul took a bailout package from the IMF in late 1997. The change of the tone from the WSJ could serve as a good argument for persuading Washington and Fed authorities.

However, a deliberate strategy is needed given the way the U.S. president has been doing business.

First, Korea can invite other relatively stable Asia-Pacific countries like Australia, Singapore and Taiwan to the party. During the 2008 financial crisis, the United States entered currency swaps with 14 economies, including Korea. Washington turned down Indonesia and Hong Kong. Korea had then been a firm ally of the United States. But it cannot be sure now. Former Prime Minister Lee Nak-yon was naïve when he suggested pursuing currency swaps with G-20 countries. U.S. President Trump will not join the group. He does not like to work in a multilateral context. He even pulled the United States out of the Paris Accord. Trump will never agree to enter an agreement with China. A currency swap pact without dollars cannot help any country.

Second, our government officials must make the most of their connections on Wall Street. The most influential figures at the U.S. Federal Reserve are the Fed chair, vice chair and head of the Federal Reserve Bank of New York. The Lee Myung-bak administration in 2008 used its connection with Citigroup Chairman Robert Rubin. Rubin had been close with then New York Fed President Timothy Geithner. But Seoul has already lost ties with New York and Washington. They should be restored first. BOK Governor Lee Ju-yeol is a rare central banker who is serving a second term. He also is acquainted with U.S. Fed Chair Jerome Powell. Also, Cho Yoon-je, an economist-turned-ambassador to the United States, must do all he can.

Third, the moves should be discreet. The Fed is proud to the extent of defying U.S. presidents. Seoul should not appear too pressing. It also should seek cooperation from the Treasury Department, White House, and the IMF in Washington. The campaign must be carried out full force. President Moon could also convince Trump directly.

The faster the better. The central bank governor and Deputy Prime Minister for the Economy Hong Nam-ki should immediately fly to the United States. This is no time for the prime minister to be checking the face mask supply situation. But all these talks may fall on deaf ears as Blue House staff are notorious for ignoring advice from outside. Let’s just hope that their ego and over-confidence do not make them think they can do without a currency swap with the United States just as they first assured us of sufficient mask supplies in the beginning.