Japan And South Korea Agree To Reopen Currency Swap Line

Japan and South Korea have announced that they intend to start discussions for setting up a fresh currency swap agreement in order to bolster the relationship between the two countries.

The finance ministers for both countries met in Seoul last week to discuss ways to work together and finalize a deal that would address a number of global financial uncertainties.

The two countries had had a currency swap agreement in force till last year,which lapsed in February at $10 billion.

Set up in 2001, the swap agreement reached almost $70 billion in 2011 but was later pared down due to political disagreements.

ARIRANG NEWS

In a statement, Yoo Il-ho South Korea Finance Minister said,

South Korea offered to start talks on a currency swap agreement as part of boosting economic cooperation with Japan.

Uncertainties can be minimized with the more swap agreements you have and our stance that we will push for as many as we can has not changed.

Japanese Finance Minister Taro Aso added that the two countries recognized the need for cooperation in the current financial scenario. The South Korean Finance Minister has said that the timeline for the discussion and the designated currency for the swap line would be decided in the near future. Yoo also highlighted that the countries would work together against trade protectionism as well as on sanctions on North Korea. The countries expressed concern about North Korea’s military programs such as nuclear and its missile development.

Ministry officials had said that initially the swap line was not on the agenda for talks. A Finance Ministry official indicated that the heightening estrangement between Seoul and Beijing had added to the likelihood of the countries agreeing to it. Observers have said that this could be part of Japan’s strategy to take a more active role in bringing together countries in order to check China’s influence in the region.

Market experts have said that wide fluctuation in the Korean won’s value against the dollar could result in the attracting the attention of speculators in case of a fresh global financial crisis, which could impact the stability of the currency. Having a swap line open with Japan could reduce the risk of this, since the Japanese yen is seen as a safe haven and the Bank of Japan has an unlimited currency swap agreement with the U.S. Fed Reserve.

Japan had earlier indicated that it was open to having discussion on reopening or expanding the swap line between both countries but only if South Korea requested it. Korea had refrained from doing so thus far fearing that it would be used by Japan as economic leverage.

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