ID :
27476
Thu, 10/30/2008 - 16:19
Auther :
Shortlink :
https://www.oananews.org//node/27476
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 major emerging economies amid the global financial crisis.
"These new facilities will support the provision of U.S. dollar liquidity in
amounts of up to $30 billion each by the Banco Central do Brasil, the Banco de
Mexico, the Bank of Korea, and the Monetary Authority of Singapore," the Fed said
in a statement, adding the arrangements will stay in effect until April 30, 2009.
The Fed said it established the new facility with these "four large and
systemically important economies ... to help improve liquidity conditions in
global financial markets and to mitigate the spread of difficulties in obtaining
U.S. dollar funding in fundamentally sound and well-managed economies."
South Korea is now one of 14 countries with such a temporary reciprocal currency
arrangement with the U.S., and is in the first group of emerging economies to
establish one. Washington maintains such arrangements with 10 of the world's
major advanced economies: Australia, Canada, Denmark, England, the European
Union, Japan, New Zealand, Norway, Sweden and Switzerland.
The Fed's announcement came almost concurrently with the International Monetary
Fund's announcement that it will set up a "Short-Term Liquidity Facility" to
establish quick-disbursing financing "for some emerging market countries, even
those that have maintained sound macroeconomic frameworks ... that are facing
temporary liquidity problems in the global capital markets."
"Disbursement of Fund resources can be up to 500 percent of quota, with a
three-month maturity," according to the lending agency. "Eligible countries are
allowed to draw a maximum of three times during any 12-month period."
South Korea's IMF quota was raised to 1.413 percent, or about US$4.4 billion,
earlier this year.
In announcing the facility, Dominique Strauss-Kahn, the IMF's managing director,
welcomed the Fed's decision to provide liquidity to South Korea and three other
emerging economies.
"These two independent facilities, like those already established with other
central banks, are designed to help improve liquidity conditions in global
financial markets and to mitigate the spread of difficulties in obtaining foreign
currency funding in fundamentally sound and well-managed economies," he said.
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 Fed'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.
South Korea has a bitter memory of begging for funds from the IMF a decade ago,
and that funding carried strict fiscal spending restraints and other
macroeconomic measures that greatly limited South Korea's policymaking process.
The new IMF currency swap does not involve any macroeconomic policy restrictions,
but still carries some interest rates, unlike the currency swap plan with the
Fed.
"There is no possibility that we are using the IMF fund, as South Korea's foreign
exchange reserves are US$240 billion and we've also signed a contract for a
currency swap for the U.S. central bank," said Yoon Jong-won, the South Korean
representative to the IMF. "Nonetheless, it helps enhance our capability to raise
short-term funds at a lower rate than in the international financial market."
The measures by the Fed and the IMF follow calls by South Korea and other
emerging economies for the U.S. and other advanced economies to cooperate closely
with developing countries to muddle through the U.S.-initiated financial
meltdown.
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.
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 has
invited South Korea and other emerging economies to a 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 a sharp
devaluation of its currency in the global financial instability despite having
foreign exchange reserves that exceed US$500 billion.
hdh@yna.co.kr
(END)
"These new facilities will support the provision of U.S. dollar liquidity in
amounts of up to $30 billion each by the Banco Central do Brasil, the Banco de
Mexico, the Bank of Korea, and the Monetary Authority of Singapore," the Fed said
in a statement, adding the arrangements will stay in effect until April 30, 2009.
The Fed said it established the new facility with these "four large and
systemically important economies ... to help improve liquidity conditions in
global financial markets and to mitigate the spread of difficulties in obtaining
U.S. dollar funding in fundamentally sound and well-managed economies."
South Korea is now one of 14 countries with such a temporary reciprocal currency
arrangement with the U.S., and is in the first group of emerging economies to
establish one. Washington maintains such arrangements with 10 of the world's
major advanced economies: Australia, Canada, Denmark, England, the European
Union, Japan, New Zealand, Norway, Sweden and Switzerland.
The Fed's announcement came almost concurrently with the International Monetary
Fund's announcement that it will set up a "Short-Term Liquidity Facility" to
establish quick-disbursing financing "for some emerging market countries, even
those that have maintained sound macroeconomic frameworks ... that are facing
temporary liquidity problems in the global capital markets."
"Disbursement of Fund resources can be up to 500 percent of quota, with a
three-month maturity," according to the lending agency. "Eligible countries are
allowed to draw a maximum of three times during any 12-month period."
South Korea's IMF quota was raised to 1.413 percent, or about US$4.4 billion,
earlier this year.
In announcing the facility, Dominique Strauss-Kahn, the IMF's managing director,
welcomed the Fed's decision to provide liquidity to South Korea and three other
emerging economies.
"These two independent facilities, like those already established with other
central banks, are designed to help improve liquidity conditions in global
financial markets and to mitigate the spread of difficulties in obtaining foreign
currency funding in fundamentally sound and well-managed economies," he said.
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 Fed'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.
South Korea has a bitter memory of begging for funds from the IMF a decade ago,
and that funding carried strict fiscal spending restraints and other
macroeconomic measures that greatly limited South Korea's policymaking process.
The new IMF currency swap does not involve any macroeconomic policy restrictions,
but still carries some interest rates, unlike the currency swap plan with the
Fed.
"There is no possibility that we are using the IMF fund, as South Korea's foreign
exchange reserves are US$240 billion and we've also signed a contract for a
currency swap for the U.S. central bank," said Yoon Jong-won, the South Korean
representative to the IMF. "Nonetheless, it helps enhance our capability to raise
short-term funds at a lower rate than in the international financial market."
The measures by the Fed and the IMF follow calls by South Korea and other
emerging economies for the U.S. and other advanced economies to cooperate closely
with developing countries to muddle through the U.S.-initiated financial
meltdown.
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.
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 has
invited South Korea and other emerging economies to a 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 a sharp
devaluation of its currency in the global financial instability despite having
foreign exchange reserves that exceed US$500 billion.
hdh@yna.co.kr
(END)
