ID :
27475
Thu, 10/30/2008 - 16:17
Auther :
Shortlink :
https://www.oananews.org//node/27475
The shortlink copeid
Fed announces currency swap line with S. Korea to help ease dollar funding By Hwang Doo-hyong
WASHINGTON, Oct. 29 (Yonhap) -- The Federal Reserve Wednesday announced a currency swap arrangement of up to US$ 30 billion each with South Korea, Mexico, Brazil and Singapore to help ease dollar funding for the major emerging economies amid the global financial crisis.
South Korea became among 14 countries that established a temporary reciprocal
currency arrangement with the U.S., and the first group of emerging economies to
do so as Washington maintains similar arrangements with the world's 10 major
advanced economies, including Japan, the European Union and Britain.
In the most recent measure, the Fed announced Tuesday a currency swap measure of
up to US$15 billion with New Zealand in a show of solidarity as both nations
muddle through the financial meltdown initiated by the U.S. housing market bubble
bursting and then the subprime mortgage crisis.
The announcement came concurrently with the International Monetary Fund that said
it has established a similar currency swap measure to give emerging economies
easier access to hard currency to help them weather the current global financial
crisis.
IMF Pacific region executive director Richard Murray said last week that "There
is no such facility with the emerging economies' central banks," stressing the
need for the IMF to "fill that gap with its own liquidity facility for emerging
economies."
Murray also said that South Korea's economic fundamentals are "significantly
different from the 1990s and much stronger" than when South Korea was hit hardest
by the Asian financial crisis in the late 1990s. Murray cited South Korea's ample
foreign exchange reserves, at more than US$240 billion, and the government's
financial liberalization policies.
However, South Korea's stock markets and its won currency's value have plummeted
to the lowest points in a decade as financial institutions in the U.S. and other
advanced economies are pulling investments to clear their bad assets at home
regardless of South Korea's economic fundamentals.
The Korea-U.S. bilateral currency swap measure is expected to help clear
lingering suspicions of possible liquidity problems for South Korea, South Korean
officials here said, although South Korea actually does not need such a currency
swap because of its ample foreign exchange reserves.
While attending the annual meeting of G20 finance ministers and central banks in
Washington on Oct. 12, South Korea's Finance Minister Kang Man-soo called for the
Fed to include emerging economies among U.S. currency swap countries to
facilitate their access to U.S. dollar funding.
Kang also said at that time that his government was discussing with the Fed a
possible bilateral currency swap.
Unlike the currency swap, which does not involve any interest rate, Seoul
officials have said they would not resort to any short-term IMF funding being
arranged for healthy emerging economies, saying that still carries some interest
rates, though it does not involve fiscal spending restraints and other
macroeconomic measures for recipient countries that drew complaints from South
Korea and other recipients a decade ago.
Pakistan, Ukraine and several other developing economies have been forced to seek
emergency funds from the IMF as fallout from the U.S. liquidity crisis, which
witnessed the collapse of major U.S. financial institutions in recent weeks, has
spilled over into financially weaker countries.
Amid criticism that the G8 advanced economies alone are not enough to resolve the
crisis in this closely intertwined global economy, the Bush administration
invited South Korea and other emerging economies to the G20 financial summit in
Washington on Nov. 15 to seek a possible reform of the global financial system
launched at the end of World War II.
South Korean President Lee Myung-bak, French President Nicholas Sarkozy and
several other state heads have called for a sweeping reform of the IMF and even
demanded establishment of a new global financial system to catch up with the
changes rapidly being made in recent years.
"The ongoing financial crisis shows the current financial system does not catch
up with the changes being made in the finance industry," Lee recently said in an
interview. "Under the new financial transaction environment, it is time for us
either to greatly reform the existing regime or to make a completely new one."
In a sign of such a change, China and Russia are discussing using their own
currencies in bilateral trade to reduce their dependency on the greenback. South
American states are following suit.
China, which has the greatest foreign exchange reserves, reaching US$2 trillion,
is seeking a similar measure with Taiwan, denouncing the U.S. for exporting its
financial crisis and benefiting from the strong U.S. dollar despite its financial
meltdown.
Russia, for its part, has been complaining that it is suffering from a sharp
devaluation of its currency amid the global financial instability despite having
foreign exchange reserves that exceed US$500 billion.
hdh@yna.co.kr
South Korea became among 14 countries that established a temporary reciprocal
currency arrangement with the U.S., and the first group of emerging economies to
do so as Washington maintains similar arrangements with the world's 10 major
advanced economies, including Japan, the European Union and Britain.
In the most recent measure, the Fed announced Tuesday a currency swap measure of
up to US$15 billion with New Zealand in a show of solidarity as both nations
muddle through the financial meltdown initiated by the U.S. housing market bubble
bursting and then the subprime mortgage crisis.
The announcement came concurrently with the International Monetary Fund that said
it has established a similar currency swap measure to give emerging economies
easier access to hard currency to help them weather the current global financial
crisis.
IMF Pacific region executive director Richard Murray said last week that "There
is no such facility with the emerging economies' central banks," stressing the
need for the IMF to "fill that gap with its own liquidity facility for emerging
economies."
Murray also said that South Korea's economic fundamentals are "significantly
different from the 1990s and much stronger" than when South Korea was hit hardest
by the Asian financial crisis in the late 1990s. Murray cited South Korea's ample
foreign exchange reserves, at more than US$240 billion, and the government's
financial liberalization policies.
However, South Korea's stock markets and its won currency's value have plummeted
to the lowest points in a decade as financial institutions in the U.S. and other
advanced economies are pulling investments to clear their bad assets at home
regardless of South Korea's economic fundamentals.
The Korea-U.S. bilateral currency swap measure is expected to help clear
lingering suspicions of possible liquidity problems for South Korea, South Korean
officials here said, although South Korea actually does not need such a currency
swap because of its ample foreign exchange reserves.
While attending the annual meeting of G20 finance ministers and central banks in
Washington on Oct. 12, South Korea's Finance Minister Kang Man-soo called for the
Fed to include emerging economies among U.S. currency swap countries to
facilitate their access to U.S. dollar funding.
Kang also said at that time that his government was discussing with the Fed a
possible bilateral currency swap.
Unlike the currency swap, which does not involve any interest rate, Seoul
officials have said they would not resort to any short-term IMF funding being
arranged for healthy emerging economies, saying that still carries some interest
rates, though it does not involve fiscal spending restraints and other
macroeconomic measures for recipient countries that drew complaints from South
Korea and other recipients a decade ago.
Pakistan, Ukraine and several other developing economies have been forced to seek
emergency funds from the IMF as fallout from the U.S. liquidity crisis, which
witnessed the collapse of major U.S. financial institutions in recent weeks, has
spilled over into financially weaker countries.
Amid criticism that the G8 advanced economies alone are not enough to resolve the
crisis in this closely intertwined global economy, the Bush administration
invited South Korea and other emerging economies to the G20 financial summit in
Washington on Nov. 15 to seek a possible reform of the global financial system
launched at the end of World War II.
South Korean President Lee Myung-bak, French President Nicholas Sarkozy and
several other state heads have called for a sweeping reform of the IMF and even
demanded establishment of a new global financial system to catch up with the
changes rapidly being made in recent years.
"The ongoing financial crisis shows the current financial system does not catch
up with the changes being made in the finance industry," Lee recently said in an
interview. "Under the new financial transaction environment, it is time for us
either to greatly reform the existing regime or to make a completely new one."
In a sign of such a change, China and Russia are discussing using their own
currencies in bilateral trade to reduce their dependency on the greenback. South
American states are following suit.
China, which has the greatest foreign exchange reserves, reaching US$2 trillion,
is seeking a similar measure with Taiwan, denouncing the U.S. for exporting its
financial crisis and benefiting from the strong U.S. dollar despite its financial
meltdown.
Russia, for its part, has been complaining that it is suffering from a sharp
devaluation of its currency amid the global financial instability despite having
foreign exchange reserves that exceed US$500 billion.
hdh@yna.co.kr
