US Treasury Secretary Janet Yellen (right) shakes hands with South Korean Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho as they pose for a photo before their meeting at Lotte Hotel in Seoul, South Korea on July 19, 2022. (CHUNG SUNG-JUN / POOL PHOTO VIA AP)
SEOUL – The United States and South Korea agreed on Saturday to implement liquidity facilities to stabilize financial markets if needed, South Korea's finance ministry said after a teleconference between finance chiefs of the two countries.
The won is near its lowest level since March 2009, and has weakened 17 percent against the surging US dollar so far in 2022, amid a broad sell-off in emerging market currencies as the Federal Reserve aggressively raises interest rates.
The agreement reached on Saturday repeats the US statement made when the US Treasury Secretary Janet Yellen last visited Seoul in July, amid growing calls for the Bank of Korea to arrange a currency swap with the Federal Reserve to stabilize the dollar-won market
"The two countries are ready to work closely together to implement liquidity facilities when necessary, such as when financial instability is aggravated by the spread of (a) liquidity crunch in major economies, including Korea," the ministry said in a statement after the call between the US Treasury Secretary Janet Yellen and South Korea finance minister Choo Kyung-ho.
The agreement reached on Saturday repeats the US statement made when Yellen last visited Seoul in July, amid growing calls for the Bank of Korea to arrange a currency swap with the Federal Reserve to stabilize the dollar-won market.
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However, the statement released on Saturday did not elaborate on whether the facilities that may be deployed referred to a currency swap and South Korea's finance ministry did not give further details.
A currency dealer walks past screens showing South Korea's benchmark stock index (left) and the Korean won/USD exchange rate (right) in a trading room at Hana Bank in Seoul on March 7, 2022. (JUNG YEON-JE / AFP)
A US$60-billion currency swap pact set up in March 2020 between the central banks of the two countries as an emergency step to stabilize markets expired at the end of last year.
Such a swap would allow South Korea to borrow a certain amount of US dollars for a pre-set period and rate, in exchange for won, so as to resolve difficulties in dollar liquidity.
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To help protect one of the world's worst performing currencies, South Korean authorities has recently arranged a US$10 billion currency swap program with the country's state-run pension fund, a tool that allows the fund to finance its overseas investment with the central bank's FX reserves, instead of buying dollars in the spot market.