S. Korea signs new currency swaps with China, Japan

(ATTN: RECASTS headline, lead; REWRITES paras 2-4,9; UPDATES with remarks by BOK's
deputy governor and deputy finance minister in paras 6-10)
SEOUL, Dec. 12 (Yonhap) -- South Korea reached new currency swap agreements with
China and Japan in an effort to help stabilize the foreign exchange market in
case of an emergency, the Bank of Korea (BOK) said Friday.

The BOK said it sealed a won-yuan swap line worth US$26 billion with the People's
Bank of China. The South Korean central bank has currently a $4 billion credit
line with the Chinese counterpart.
The BOK said it also agreed with the Bank of Japan (BOJ) to expand its existing
won-yen swap facility to $20 billion from $3 billion. South Korea has a $13
billion swap line with Japan.
The swap deal with China will be effective for three years with a possibility of
an extension through agreement, while that with Japan will be in effect until the
end of April 2009, it said.
The moves will raise the total swap lines with the BOJ and the People's Bank of
China to $30 billion each.
"The new swap deals will serve as a safety valve for the local currency market
and help Korea brace for a worst-case scenario amid the financial turmoil," Rhee
Gwang-ju, a deputy governor at the BOK, told a press conference.
"The decision reflects concerted efforts by the three nations to bring stability
to the region and ease liquidity shortage woes."
On Oct. 30, the BOK announced a $30 billion currency swap agreement with the U.S.
Federal Reserve, tapping $7 billion out of the swap line so far. The local
currency posted its largest daily gain against the dollar in 11 years on the same
day.
Government officials hailed the new deals, saying they will help deal with and
stave off a financial crisis.
"We welcome swap expansion deals," Shin Je-yoon, deputy finance minister for
international affairs, told reporters. "The decisions are the results of close
cooperation among the three countries and shared efforts to tackle the financial
crisis in the Asian region."
Market watchers said the move will have a positive effect on the financial market.
"South Korea's expansion of currency swap agreements with Japan and China will
help ease some jitters about falling foreign exchange reserves and a weaker won.
But as the news has already been factored into the market, the impact of the
won's gain would be limited," said Jeon Seung-ji, a currency analyst at Samsung
Futures Inc.
Despite the news, the local currency closed at 1,372.5 won to the greenback, down
14 won from Thursday's close as dollar demand remained strong after the U.S.
Senate rejected a bailout plan for the ailing auto industry.
The latest move comes amid a dollar shortage in the local financial market, which
has been impacted by the collapse of U.S. investment bank Lehman Brothers
Holdings Inc. The local currency has fallen about 32 percent against the U.S.
dollar so far this year.
Concerns have been mounting over South Korea's foreign exchange reserves, the
world's sixth-largest, as they declined for the eighth straight month in November
due to liquidity injections designed to ease an ongoing credit crunch and
financial jitters.
The foreign reserves totaled $200.51 billion as of end-November, down $11.74
billion from a month ago. South Korea has pumped $31.9 billion into the local
financial system over the past two months from a planned $55 billion to ease the
frozen credit market.
sooyeon@yna.co.kr
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