S.Korea & Canada Sign First Currency Swap Deal With No Limit

South Korea and Canada officials met on November 15 to sign a bilateral currency swap deal, which provides South Korea a strong safety net from possible financial crisis and crashes in the future.

After months of talk between the two countries, the signing ceremony was held in Ottawa and completed by Bank of Korea (BOK) Governor Lee Ju-yeol and Bank of Canada Governor Stephen S. Poloz.

It has become the first currency swap arrangement made by South Korea without an expiry date or a ceiling limit on liquidity provisions.

The BOK said that the agreement with Canada will help bolster the current safety nets established by both banks with various countries. Effective immediately, the Bank of Canada will be able to provide Canadian dollars to financial institutions in South Korea and vice versa.

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In a statement, Kim Dong-yeon, Finance Minister of South Korea said

It is meaningful we have acquired the strongest ever safety net that can be used in various possible crises. The deal could help improve South Korea's overseas credibility and further deepen economic and financial cooperation between the two countries.

South Korea is currently Asia’s fourth largest economy next to China, India and Japan. It is also Canada’s 9th largest trading partner, supplying key export items as steel products, cars, and electronic products. Canada is ranked in 21st place when it comes to South Korea’s trading partner exporting minerals and meats to the country. Ever since South Korea and Canada signed the Canada–South Korea Free Trade Agreement in 2014, trade between the two countries have become more fruitful.

Due to this trade agreement, Canada decided to remove 97-98 percent of tariff lines for goods imported and exported to and from both countries which is the first exception made by Canada with an Asian nation. According to Lee, this swap deal with Canada is one of their most meaningful deals since 2008. Currently Canadian dollars are one of South Korea’s six reserve currencies.

Following the 2008-2009 global financial crisis, South Korea has begun creating currency deals with various countries inside and outside Asia. Some of the currency swap deals that South Korea has made over the years involve the United States, China and Australia. Just last month, South Korea renewed its US$56 billion currency swap with China for another three years, despite Beijing’s unofficial restriction of trade and tourism with South Korea. Canada also has similar standing currency swap agreements with six other countries including China and the United States.

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