[BOJ Big Step] Is Korea-US Currency Swap Possible... Lee Chang-yong "Expecting Discussions with Yellen and Choo Kyung-ho"

Lee President "Natural Discussion Possible at Yellen-Choo Kyung-ho Meeting"
Recent Exchange Rate Rises to 1300 Won, Sparking Interest in Currency Swap

Bank of Korea Governor Lee Chang-yong is answering questions from the press at the Monetary Policy Direction press conference held at the Bank of Korea in Jung-gu, Seoul on the 13th. Photo by Kang Jin-hyung aymsdream@

Lee Chang-yong, Governor of the Bank of Korea, stated that discussions on measures to stabilize the foreign exchange market are expected to take place following U.S. Treasury Secretary Janet Yellen's visit to Korea, raising hopes that the Korea-U.S. currency swap agreement could gain momentum.

At a press conference held immediately after the regular meeting of the Monetary Policy Committee on the 13th, Governor Lee said, "The Korea-U.S. currency swap is the responsibility of the Federal Reserve (Fed), not the Treasury Department," but added, "However, when President Joe Biden visited Korea last time, the two leaders mentioned considering various measures to stabilize the foreign exchange market, so I expect that discussions on this will naturally occur in talks with Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho."

Earlier, President Yoon Suk-yeol and President Biden held a summit on May 21, agreeing on bilateral cooperation related to the foreign exchange market. The joint statement included the content that "to promote sustainable growth and financial stability, including an orderly and well-functioning foreign exchange market, the two leaders recognized the need to closely consult on foreign exchange market developments."

Following this, the market has seen forecasts that discussions on the Korea-U.S. currency swap could gain traction. Wang Yoon-jong, Economic Security Secretary at the Presidential Office, also said at the time, "If a currency swap is to be done, the U.S. side is handled by the Fed, which strongly emphasizes the independence of the central bank," adding, "We expect the discussions to continue going forward."

A currency swap is a transaction where two countries exchange the amount of money needed at a pre-agreed exchange rate and then re-exchange the principal at the originally agreed rate after a certain period. Recently, concerns over a global economic downturn and the Fed's sharp tightening have increased preference for the dollar, causing the won-dollar exchange rate to rise significantly. Many in the market and experts believe a Korea-U.S. currency swap is necessary.

Governor Lee met with Fed Chair Jerome Powell at the Bank for International Settlements (BIS) annual meeting last month and will hold a bilateral meeting with Treasury Secretary Yellen, who will visit Korea after attending the G20 Finance Ministers and Central Bank Governors Meeting, on the 19th.

However, since the likelihood of the U.S. immediately agreeing to a currency swap is low, the Bank of Korea is taking a cautious stance.

Governor Lee said, "The Korea-U.S. currency swap in 2008 was aimed at stabilizing emerging and major countries, including Korea, when the global financial market was shaken, because it was beneficial for the U.S.," adding, "This will be discussed from a global perspective to stabilize the global financial market, not just from Korea's viewpoint. The Korea-U.S. currency swap is a separate issue."

Regarding the exchange rate fluctuating around 1,300 won, he said, "It is inappropriate to compare the current situation with 1997 or 2008," and added, "Since currencies other than the dollar are depreciating globally, we should not think of the crises of 1997 or 2008 but rather assess how the won-dollar exchange rate compares relative to other countries' situations."