Fed extends currency swap line with S. Korea

(ATTN: RECASTS headline, first 4 paras to trim story; UPDATES with more info throughout)
SEOUL, Feb. 4 (Yonhap) -- The U.S. Federal Reserve has extended its currency
swap facility with South Korea by six months in a move to help ease financial
market jitters over a dollar shortage, the Bank of Korea (BOK) said Wednesday.
The BOK said in a statement that the US$30 billion swap line, signed in late
October 2008 amid a global financial crisis, will be extended until Oct. 30.
South Korea has tapped $16.35 billion from the facility so far.
"This action of extending its swap agreement with the Federal Reserve should
contribute to improving the foreign currency funding conditions of banks and
restoring stability to the financial market in Korea," the BOK said.
Following the swap line extension, the won gained against the greenback. The
local currency was trading at 1,374.70 won to the dollar as of 10:30 a.m., up
14.8 won from the previous session.
The October agreement came as the Korean currency was pounded by concerns over
Seoul's dollar shortage, following the collapse of the U.S. investment bank
Lehman Brothers Holdings Inc. The won tumbled 25.7 percent to the dollar last
year alone, becoming one of the world's worst-performing currencies.
The swap arrangement, however, helped ease fears about declining foreign reserves
and stabilize the local currency.
South Korea's foreign exchange reserves, which totaled $201.74 billion as of the
end of January, fell for eight consecutive months in 2008 before climbing
slightly in December. The country's foreign reserves rose for the second straight
month in January as local banks repaid part of foreign currency loans extended by
the BOK.
With the extension of the swap facility, the BOK said it will provide dollars to
the currency market if necessary.
"When necessary, the BOK will continue to offer dollar liquidity to banks through
competitive auctions by tapping the swap facility," Ahn Byung-chan, head of the
central bank's international bureau, told reporters.
In a related move, South Korea reached new currency swap arrangements with China
and Japan in mid-December, expanding its existing swap lines with the two
countries to $30 billion each.
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.
"As the swap arrangement with the U.S. is extended, the BOK hopes that there will
be no major difficulties in extending the swap line with Japan," Ahn said.
Analysts say the extension will likely help ease lingering uneasiness in the
local foreign exchange market where the local currency flirted with the 1,400-won
level against the greenback.
"It is positive that the move will contribute to calming concerns over the dollar
shortage to some degree. It will also help in expanding Korea's other swap
lines," said Shin Jin-ho, a currency analyst at Woori Futures Co.
"But given deteriorating exports and the fast slowing economy, the won is
forecast to continue its downward movement until the first half."
sooyeon@yna.co.kr
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