South Korea and the U.S. have signed a 60-billion-dollar bilateral currency swap agreement, Seoul’s central bank said on Thursday.
The agreement is a move expected to relieve liquidity crunch caused by the global spread of the new coronavirus.
According to the Bank of Korea, the currency swap line will be in place for no less than six months.
“The Bank of Korea (BOK) plans to immediately supply U.S. banknotes it secures via the currency swap arrangement.
“This is expected to help stabilise the local foreign exchange market that is showing a rapid change in the exchange rate due to a recent shortage of dollars,’’ the BOK said in a press release.
The Korean won fell by 40 won to close at 1,285.70 won against the U.S. greenback, the lowest in over a decade as investors rush to the hard currency, deemed a safer asset.
According to BOK, the latest currency swap line marked the second of its kind to be signed with the U.S.
The first South Korea-U.S. currency swap arrangement, signed in October 2008, was originally set to expire after six months, however was twice extended until February 2010.
“The arrangement helped bring the won-dollar exchange rates to 1,170 won per dollar in February 2010 from 1,468 won per dollar at its start in October 2008,’’ the BOK said.
South Korea currently has bilateral currency swap arrangements with eight countries, including Australia, Canada and China.
According to the BOK, they, together with a multilateral arrangement involving the 10 member states of the Association of Southeast Asian Nations, are worth over 193 billion.
“The Bank of Korea will continue to work for the stabilisation of the financial market through cooperation with the central banks of major countries,’’ it said.
Early this week, South Korea took a series of steps to funnel more liquidity into the financial system and its economy amid the deepening global market rout and economic impact.
In particular, the country’s financial authorities raised a cap on foreign currency forward positions for local banks to 50 per cent of their equity capital, from the current 40 per cent, in an effort to ease dollar shortage in the capital market.
South Korea, hit by the growing outbreak of COVID-19, has announced an extra budget worth 11.7 trillion won to help the economy chug along.
The central bank also cut its policy rate by half a percentage point to a record low of 0.75 per cent.