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(3rd LD) End of swap line with U.S. to have little impact on market: BOK

All Headlines 15:36 December 17, 2009

(ATTN: CLARIFIES para 4; UPDATES with market close in para 7)

SEOUL, Dec. 17 (Yonhap) -- The Bank of Korea (BOK) said Thursday that the planned expiration of its swap arrangement with the U.S. Federal Reserve will have little impact on South Korea's foreign exchange markets.

On Oct. 30, 2008, the Fed reached a US$30 billion currency swap arrangement with the BOK in the midst of rising global financial turmoil, a move which helped stabilize the local financial markets. The accord was extended twice through Feb. 1.

On Wednesday, the Fed said that it is working with other central banks to close temporary liquidity swap arrangements by that date.

"Even if the swap facility ends, there will be little impact on the South Korean financial market," Ahn Byung-chan, director general at the BOK's international bureau, told a press conference.

"The Fed's planned move reflects the fact that the global financial market situation is improving."

Although there have been some market jitters, including the Dubai debt crisis and Greece's credit downgrade, such events are not seen as risk factors that could sharply dent global financial markets.

Despite the BOK's remarks, the local currency closed at 1,177.9 won versus the greenback, down 13 won from the previous session.

The swap line came as the local currency was pounded by concerns over a possible dollar shortage in South Korea following the collapse of the U.S. investment bank Lehman Brothers Holdings Inc. The won tumbled 25.7 percent to the dollar last year alone.

The BOK has tapped $16.35 billion out of the swap arrangement so far to provide foreign currency liquidity to cash-strapped banks. On Thursday, the central bank said it has repaid all of the money as it recouped the remainder of its foreign currency loans to banks worth $450 million.

The swap arrangement helped ease fears about declining foreign reserves, stabilizing the local currency.

The Korean currency has since gained against the U.S. dollar as the country's current account remained in the black for the ninth straight month in October and foreign investors snapped up local stocks. The won has risen about 35 percent to the dollar since early March when it hit an 11-year low.

South Korea's foreign reserves, the world's sixth-largest, rose to a record $270.89 billion as of the end of November, rebounding from eighth straight months of decline into November 2008 as foreign exchange authorities unloaded dollar holdings to stem the won's fall and ease a deepening credit squeeze.

In a related move, South Korea reached new currency swap arrangements with China and Japan in mid-December last year, expanding its existing swap lines with the two countries to $30 billion each.

Ahn added the U.S. move will likely not impact possible extensions of the swap facilities with China and Japan as such issues will be discussed separately.

sooyeon@yna.co.kr
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