China-S.Korea currency swap deal may end

Agreement less relevant amid tense relations: expert

The $56 billion currency swap deal between China and South Korea – due to expire on Tuesday – may not be extended, an expert said, as the deal has become less relevant amid a contraction in bilateral investment and trade.

“Given that the tense political relations between South Korea and China show no sign of easing, the extension of the deal faces great uncertainty. It’s more likely that the deal will be suspended temporarily because the declining investment and trade between the two countries make it meaningless to maintain the swap,” said Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology.

Besides, the swap is not as necessary as before, considering the relatively stable global currency environment and the yuan’s current exchange rate, Dong told the Global Times on Tuesday.

The swap allows both central banks to get access to each other’s currency if they need extra short-term liquidity. It helps maintain the stability of a country’s foreign exchange rate and boosts the currency’s internationalization. The two countries have kept the swap deal going for the past seven years.

The People’s Bank of China, the country’s central bank, didn’t immediately comment when reached by the Global Times on Tuesday.

Bank of Korea Governor Lee Ju-yeol remained cautious on Tuesday, and asked for patience as talks were still ongoing, Reuters reported Tuesday.

“There has been no outcome yet, and we have meetings today,” he said when asked if the deal would be extended.

“Negotiations are still taking place. It would be great if things could be concluded before expiration, but that is not always the case,” Lee said.

The $56 billion agreement with China is South Korea’s biggest currency swap deal, accounting for about 45 percent of its swap arrangements.

The Korea-US and Korea-Japan currency swap deals expired before 2015, which increases the importance of the country’s swap with the yuan, South Korean news site the Dong-A Ilbo reported Monday.

At the same time, signing currency swap deals with neighboring countries is a good way to boost the yuan’s internationalization, so it is still possible the two countries will resume the swap deal when tensions ease between the two sides, Dong noted.