(LEAD) Seoul, Tokyo agree to extend US$10 bln currency swap deal by another 3 yrs

South Korea and Japan agreed to extend their three-year, US$10 billion currency swap arrangement. The agreement was due to expire in November 2026. Extending it keeps a financial safety tool available between the two countries.

The renewed arrangement will remain the same size. It involves the U.S. dollar and allows either country to obtain dollars by providing its own currency. South Korea would exchange Korean won, while Japan would exchange Japanese yen.

The agreement will now run through November 2029. Officials said both countries currently have ample foreign-exchange liquidity, so the swap is also a symbol of bilateral cooperation. They discussed broader economic and financial exchanges and agreed to hold a ministerial meeting in South Korea as soon as possible.

A currency swap is a financial safety tool. It allows a country facing a shortage of foreign currency to obtain it from another country. This can help guard against financial turmoil and ease pressure during a liquidity crunch.

The current South Korea-Japan arrangement uses the U.S. dollar. South Korea can borrow dollars from Japan by providing Korean won in exchange. Japan can borrow dollars from South Korea by providing Japanese yen. The mechanism gives both countries a possible source of dollar liquidity.

The arrangement is not a permanent transfer of money under normal conditions. It is an agreed framework that can be used when needed. Officials said both countries currently maintain ample liquidity. They described the swap as a symbol of bilateral cooperation, as well as a tool supporting financial stability.

The current South Korea-Japan currency swap is worth US$10 billion. The amount did not change when the countries agreed to extend the arrangement through November 2029. Its main purpose is to provide access to foreign-currency liquidity if financial conditions become difficult.

The arrangement was much smaller in 2001, when it stood at $2 billion. Amid global financial uncertainties, it expanded to $70 billion in 2011. This shows that the swap’s scale has changed substantially over time, depending on the countries’ financial cooperation and circumstances.

The arrangement expired in 2015 and stayed inactive for more than eight years. South Korea and Japan revived it in 2023 with a new structure based on the U.S. dollar. The revived deal was set at $10 billion, far below its 2011 peak but large enough to symbolize renewed cooperation.

When a country faces a financial crisis and needs foreign currency, a currency swap gives it a possible source of liquidity. The country provides its own currency and receives the foreign currency covered by the agreement. This can help when available foreign-currency funds are suddenly tight.

For example, under the current South Korea-Japan arrangement, South Korea can borrow U.S. dollars from Japan in exchange for Korean won. Japan can borrow U.S. dollars from South Korea in exchange for Japanese yen. The exchange is based on the agreed swap framework rather than an ordinary market transaction.

The article describes this tool as a guard against financial turmoil. It does not say that either country is currently using the arrangement. Instead, officials said both countries have ample liquidity. The swap remains available as a precaution and as a symbol of bilateral economic cooperation.

The U.S. dollar is central because South Korea and Japan revived their swap in 2023 with a new structure based on the dollar. The deal is therefore not limited to a direct won-for-yen exchange. It gives both countries access to the same foreign currency.

Under the arrangement, South Korea can borrow dollars from Japan in exchange for Korean won. Japan can do the same in reverse, borrowing dollars from South Korea in exchange for Japanese yen. The dollar serves as the foreign-currency asset exchanged through the framework.

This structure matters because a currency swap is designed to provide liquidity during financial turmoil. The article does not say that either country currently faces a shortage. Instead, officials said their foreign-exchange authorities have ample liquidity and called the arrangement a symbol of bilateral cooperation. It will remain in place through November 2029.

The South Korea-Japan currency swap expired in 2015. The article links its long inactivity to strained bilateral relations. It does not identify a specific dispute, decision, or financial event that caused the expiration or kept the arrangement dormant.

The arrangement remained inactive for more than eight years. During that period, the earlier swap was no longer operating. The article provides historical amounts, noting that the arrangement had reached $70 billion in 2011 after starting at $2 billion in 2001.

In 2023, the two countries agreed to revive the arrangement with a new structure based on the U.S. dollar. The revived deal was set at $10 billion for three years. They have now extended that agreement through November 2029, while keeping its size unchanged. Officials describe it as both a liquidity safeguard and a symbol of bilateral cooperation.

A country may have its own currency yet still need foreign currency during financial stress. Its domestic money cannot automatically meet every foreign-currency payment or liquidity need. A shortage can become especially serious when access to foreign currency suddenly tightens.

A currency swap creates a backup source. Under the South Korea-Japan arrangement, South Korea can provide Korean won and obtain U.S. dollars from Japan. Japan can provide yen and obtain dollars from South Korea. The countries therefore use their own currencies to access a foreign currency when necessary.

The article defines the swap as a tool for guarding against financial turmoil. It does not say that South Korea or Japan currently lacks dollars. Their officials said both countries maintain ample liquidity. The arrangement remains valuable as a precaution and as a sign of economic cooperation, with the current agreement lasting through November 2029.