BOK: S Korea, Japan To Extend Bilateral FX Swap Line By 3 Months

SEOUL -- The Bank of Korea said Friday that it has agreed with the Bank of Japan to extend a bilateral currency-swap agreement by three months to Feb. 1 to ensure stability in regional financial markets.

The extension was the second after both countries in March agreed to prolong the agreement for six months to the end of October.

In December 2008, South Korea and Japan reached agreement to expand an existing won-yen swap line, which first took effect in 2005, to an equivalent of $20 billion from $3 billion earlier.

"The Bank of Korea believes that this action will continue to contribute to securing stability in regional financial markets as significant uncertainties remain in the global economy and financial markets," the BOK said in a statement. The global economy has, however, been recovering recently, it added.

"We haven't tapped the $20-billion Korea-Japan currency swap line yet. It's a kind of an insurance against any contingencies," said an official at the BOK's international department.

South Korea and Japan maintain a separate $10 billion dollar-swap facility under the Chiang Mai Initiative for use in emergencies.

In June, the BOK extended a US$30-billion currency swap agreement with the U.S. Federal Reserve by three months to Feb. 1 to help stabilize global financial markets and ease liquidity shortages in the domestic market.

From its swap line with the Fed, the BOK had loaned local banks as much as $16.35 billion at one point in early March.

Since mid-March, however, the BOK has reduced such loans and retrieved much of them amid signs of improving liquidity. The outstanding amount has now fallen to $3.05 billion.

South Korea also has a KRW38 trillion ($33 billion) three-year swap arrangement with China, under which they can swap their domestic currencies.

That deal supplements a previous bilateral agreement under the Chiang Mai Initiative to exchange an equivalent of as much as $4 billion in won for the yuan.