By Cho Si-young
South Korea and China agreed on Friday to renew their $56 billion currency swap deal three days after its expiry amid a diplomatic rift over Seoul’s deployment of a controversial U.S. missile shield.
The deal has been extended on the same terms as before, Korea’s finance minister Kim Dong-yeon and Bank of Korea Governor Lee Ju-yeol told reporters during a meeting at the G20 Summit in Washington D.C. on Thursday (local time). The $56 billion deal will be extended for another three years, they confirmed.
The Korea-China currency swap agreement allows Korea to exchange its currency won into the Chinese renminbi or vice versa in a time of emergency, for example when either country is under financial distress. In the wake of the 2008 global financial crisis, Korea had entered into currency swap agreements with not only China but also the United States and Japan. While the deals with the U.S. and Japan have since expired, Korea has twice renewed its swap deal with China.
The importance of the currency swap with China has spiked at a time of mounting threat from North Korea and monetary tightening prospects from the U.S. and other major countries. But possibility of the deal renewal had appeared murky as the two countries failed to reach an agreement even after its expiry on Tuesday. Many remained skeptical about the deal extension as talks have been complicated by Seoul’s installment of the Terminal High Altitude Area Defense (THAAD) system, which Beijing vehemently opposes for security reasons.
Market analysts are keeping an eye on whether the latest deal extension would ease the frayed relations between the two neighbors.