Scale Expanded to 70 Trillion Won... Deputy Prime Minister Hong Nam-ki "Strengthening Market Stability"
[Asia Economy Reporter Jang Sehee] Following the news of the extension of the currency swap agreement between South Korea and China, the foreign exchange market anticipates that the synchronization between the Korean won and the Chinese yuan will intensify further. Given the expanded scale and duration compared to the previous contract, there is a view that global investors' perception of won-yuan synchronization could strengthen.
On the 22nd, the Bank of Korea and the People's Bank of China agreed to maintain the currency swap contract until October 10, 2025, increasing the scale from the previous $56 billion (approximately 64 trillion KRW / 360 billion yuan) to $59 billion (approximately 70 trillion KRW / 400 billion yuan). This is the largest scale among China's currency swap agreements with other countries, alongside Hong Kong (400 billion yuan). A currency swap is a contract where, in emergencies such as a foreign exchange crisis, countries deposit their own currency and borrow the counterpart's currency at a pre-agreed exchange rate.
On the day, the Bank of Korea stated, "The extension contract was signed with the purpose of promoting bilateral trade, stabilizing financial markets, and supporting liquidity for financial institutions operating in the counterpart country," adding, "It is expected to contribute to regional financial stability by ensuring that trade payments can be settled in domestic currencies even during periods of high volatility in international financial markets."
However, some analysts predict that the synchronization between the won and the yuan will deepen further. Oh Changseop, a researcher at Hyundai Motor Securities, said, "South Korea and China have a high economic correlation," noting that "the appreciation rates of the yuan and the won are at similar levels." He added, "As the internationalization of the yuan strengthens and its share within global currencies increases, the synchronization between the won and the yuan will intensify."
Nevertheless, Lee Ju-yeol, Governor of the Bank of Korea, has previously stated regarding the past co-movement of the won and yuan that synchronization is inevitable considering the close Korea-China relationship, and that moving together can help prevent negative impacts on exports.
Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, also commented, "Although the domestic foreign exchange supply and demand are balanced without major issues, it is judged that there was a psychological effect as the won showed synchronized strength with the yuan's appreciation," adding, "We will closely monitor any abnormal movements of the exchange rate that deviate from foreign exchange supply and demand or the fundamental conditions of our economy and will promptly strengthen market stabilization measures."
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