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(News Focus) Currency swap deal with Canada bolsters S. Korea financial safety net

All Headlines 13:53 November 16, 2017

By Kim Kwang-tae

SEOUL, Nov. 16 (Yonhap) -- South Korea has clinched a standing bilateral currency swap deal with Canada, officials said Thursday, securing a powerful safety net against any possible financial crisis.

"The arrangement allows for the provision of liquidity in each jurisdiction to support domestic financial stability should market conditions warrant," the Bank of Korea said in a statement.

The deal was reached between BOK Governor Lee Ju-yeol and his Canadian counterpart Stephen S. Poloz in Ottawa on Wednesday after months of talks.

Bank of Korea Governor Lee Ju-yeol (L) shakes hands with his Canadian counterpart Stephen S. Poloz after signing the agreement establishing the swap arrangement at a ceremony at the Bank of Canada's head office in Ottawa, Canada. on Nov. 15. (Yonhap) This photo was provided by the Bank of Canada.

Lee said the arrangement is "the most meaningful currency swap deal" since 2008 when South Korea signed a liquidity swap arrangement with the United States, citing the Canadian dollar's status as one of its six reserve currencies.

The arrangement -- which set neither deadline nor ceiling -- is the same type of currency deal that has been in place between the U.S., eurozone, Japan, Britain, Switzerland and Canada.

The BOK said South Korea can "indirectly" enjoy the effects of the network of the bilateral swap lines among the six regions.

Canada receives the highest AAA ratings from three major global rating agencies -- Standard & Poor's, Moody's Investors Service and Fitch Ratings Inc.

The deal represents "Canada's commitment to back up South Korea in case of financial instability," Lee said. "I think we have secured a big safety net."

A currency swap is a tool for defending against financial turmoil by allowing a country beset by a liquidity crunch to borrow money from others with its own currency.

Lee also said the deal means that Canada recognizes the necessity of strengthening financial cooperation with Asia's fourth-largest economy.

The trade volume between South Korea and Canada stood at US$8.3 billion in 2016. South Korea is Canada's 9th largest trading partner and Canada is the 21st trading partner of South Korea.

South Korea's key export items to Canada include cars, steel products and electronic products, while Canada exports minerals and meats.

Finance Minister Kim Dong-yeon also said the liquidity swap arrangement means South Korea has secured a powerful backup that can be utilized in case of a crisis.

"The deal could help improve South Korea's overseas credibility and further deepen economic and financial cooperation between the two countries," Kim said in a briefing in central Seoul.

South Korea has liquidity swap arrangements worth US$120 billion with China, Australia and other countries. Still, it marked the first time that South Korea has a standing currency swap deal that sets no prior ceiling.

Last month, Seoul and Beijing agreed to renew their swap arrangement worth 64 trillion won (US$55 billion).

South Korea forged a $30 billion currency swap deal with the U.S. amid the global financial crisis in late 2008, but the two sides terminated the currency swap line in 2010 amid growing signs of economic recovery.

Kim also said South Korea will expand currency swap deals with other major countries to further bolster its financial safety net, though he did not go into detail.


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