U.S. to end currency swap lines with S. Korea, others: Fed

By Hwang Doo-hyong
WASHINGTON, Jan. 27 (Yonhap) -- The U.S. Federal Reserve said Wednesday it will
terminate currency swap lines with the central banks of South Korea and several
other countries next week amid growing signs of economic recovery and stabilizing
global financial markets.

The announcement comes one day after the International Monetary Fund raised the
global economic growth projection to 3.9 percent for this year. It is up from an
earlier forecast of 3.1 percent, and remarkably higher than last year's 0.8
percent contraction in the global economy.
The Fed established the currency swap arrangements with South Korea, Mexico,
Brazil and Singapore in late 2008 -- at the height of the global recession,
triggered by the U.S. subprime mortgage crisis -- to help ease dollar funding for
major emerging economies.
"(T)he temporary liquidity swap arrangements between the Federal Reserve and
other central banks will expire on February 1," the Fed said in a statement.
It also terminated most other special liquidity facilities and said it would
maintain the federal funds rate at zero to 0.25 percent "for an extended period,"
citing "low rates of resource utilization, subdued inflation trends, and stable
inflation expectations."
Washington maintains currency swap lines with 10 of the world's major advanced
economies: Australia, Canada, Denmark, Britain, the European Union, Japan, New
Zealand, Norway, Sweden and Switzerland.
The Fed's bilateral $30 billion currency swap deal with South Korea greatly
helped clear lingering concerns over potential liquidity problems for the world's
14th biggest economy at the time, although Seoul officials have noted the swap
line was not absolutely necessary because Korea holds one of the world's largest
foreign reserves.
The initial six-month swap line with South Korea has been extended twice.
South Korea's foreign reserves hit a record high last month of over US$270
billion due to surging exports, which were helped by a weak Korean currency and a
fast economic recovery. The nation's growth rate moved into positive territory
last year amid the global recession.
The IMF forecast South Korea's economy will grow 4.5 percent last month, and some
Korean think tanks put the number at higher than five percent.
The currency swap by the Fed and similar facilities offered by the IMF followed
calls by emerging economies for the U.S. and other advanced economies to
cooperate closely with developing countries to help them through the financial
meltdown.
China, which has the largest amount of foreign exchange reserves, reaching US$2
trillion, and Russia are discussing using their own currencies in bilateral trade
to reduce their dependency on the greenback. South American states are following
suit.
hdh@yna.co.kr
(END)

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