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Korea, China yet to reach a deal

Gov’t says nothing has been decided as currency swap expires
Oct 11,2017
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An employee at KEB Hana Bank looks at Korean won and Chinese yuan at the bank’s main branch in central Seoul on Tuesday as a currency swap deal between the two countries was due to expire on the same day. [YONHAP]
The central banks of Korea and China are yet to announce a decision on the renewal of a bilateral currency swap arrangement, raising questions over the future of the deal that was due to expire on Tuesday.

The Bank of Korea and the Finance Ministry said that the discussion is still underway.

“Nothing has been decided so far and a meeting [with the People’s Bank of China] is scheduled today,” said Bank of Korea Governor Lee Ju-yeol.

Multiple media outlets, however, reported that the two sides had agreed to extend the $56 billion currency contract for another three years, despite speculation that Korea’s decision to deploy the U.S.-led Terminal High Altitude Area Defense (Thaad) antimissile system would make China turn its back on the deal.

The Bank of Korea refuted the claims, saying that the bank “is unable to confirm the reports since the two parties are in talks.”

Finance Minister Kim Dong-yeon struck an optimistic tone when he met reporters on Tuesday after a visit to the Korea Federation of SMEs in Yeouido, western Seoul.

“The currency swap has positive effects on Korea’s economy. The bigger the size, the better it is,” Kim said, “And China is also interested [in extending the swap deal], considering the issue of making the yuan a key international currency.”

The fact that the parties failed to strike a deal by the maturity date doesn’t necessarily mean that renewal is unlikely, as negotiations can continue even after the expiration date has passed.

“Maturity doesn’t necessarily mean all or nothing,” Lee said. “It would be good if the decision is made before the end of the agreement. But things don’t always go that way.”

Lee’s Chinese counterpart also refrained from releasing an official announcement, though a state-affiliated newspaper carried an article quoting a senior official who remained cautious about renewing the deal.

The senior official told the Global Times, a tabloid controlled by China’s Communist Party, that China is unlikely to suffer imminent loss even if the swap deal ends.

On the Korean side, the arrangement with China accounts for nearly half of the $122 billion worth of currency swaps Korea has with other countries, pushing the Korean government and the central bank to scramble to lengthen the deal.

In general, a currency swap deal allows two countries to exchange payments in one currency for an equivalent amount in the other to facilitate bilateral trade transactions and offer liquidity support to financial markets.

Should the renegotiation succeed, the Moon Jae-in administration could argue that it is a diplomatic turning point with China, Korea’s No. 1 trading partner, which has imposed a range of economic retaliations against Korea in the wake of the deployment of the U.S.-led antimissile system.

The two countries began the exchange worth 26 billion won ($22.9 million) back in 2009 to avoid a liquidity crisis and facilitate bilateral trading.

Both parties agreed to double the size in 2011 and went on to renew the swap deal in 2014 during former President Park Geun-hye’s state visit to China.

But growing tensions surrounding the deployment of Thaad, a system that China sees as a security threat, have raised questions over whether the extension will be possible or not.

Japan unilaterally suspended talks on its deal in January over a statue commemorating women forced to work as sexual slaves under Japanese colonial rule.

At the time, the Korean government expressed regret but made it clear that it has no plan to ask for a renegotiation.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]