Korea looks to extend China currency swap

Extending the $56 billion currency swap with China has become a priority of the Korean government this year.

“Although the two governments have in principle agreed in extending the currency swap [that matures in October], because of political issues we cannot cancel the possibility of failing to extend the swap,” said Song In-chang, deputy minister of international affairs at the Ministry of Strategy and Finance on Tuesday.

Song said if China decides to pull out it will undoubtedly affect Korea’s liquidity as the currency swap with China accounts for more than half of the $108.9 billion currency swaps Korea has with other countries.

“The [currency swap] is like a limit on an emergency account,” the deputy minister said. “[If China decides to cancel the currency swap] it would be the same as having our maximum access shrunk to more than half.”

The Korean and the Chinese government signed a 60 billion yuan ($8.73 billion) currency swap in April 2009, which matures in October. Korean Finance Minister Yoo Il-ho and People’s Bank of China Zhou Xiaochuan agreed to extend the currency swap during the Inter-American Development Bank annual meeting held in Nassau, Bahamas in April.

However, the relationship between the two countries has soured since the Korean government in July decided to deploy the U.S. military’s Terminal High Altitude Area Defense (Thaad) system on the peninsula, a move that has resulted in retaliation by the China in recent months.

“We will do our best so that the currency swap with China would continue [even after October],” Song said.

The deputy minister said the Japanese government’s recent decision not to pursue a currency swap with Korea will not have a major influence as would the currency swap with China as it was only a discussion.

“However, we don’t see the necessary reason in hanging on to the currency swap [discussion] with Japan,” Song said.

Japan said recently that it has decided not to pursue talks on the currency swap with Korea to protest the installation last month of a bronze “comfort women” statue in front of the Japanese consulate in Busan.

The currency swap between Korean and Japan that lasted 14 years ended in February 2015 after the remaining $10 billion reached maturity. The Japanese government has been reducing the currency swap with Korea since August 2012 when then-President Lee Myung-bak visited Dokdo, the disputed islet on the East Sea, worsening the relationship between the countries.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]