Fed ending currency swap lines with S. Korea, other countries in Feb.

By Hwang Doo-hyong
WASHINGTON, Dec. 16 (Yonhap) -- The Federal Reserve said Wednesday that it will
terminate currency swap lines with its central bank counterparts, including South
Korea's Bank of Korea, in February to reflect recent improvements in the global
financial markets.
"The Federal Reserve will also be working with its central bank counterparts to
close its temporary liquidity swap arrangements by February 1," the Fed said in a
statement, which also terminated most other special liquidity facilities and
maintained the federal funds rate at zero to 0.25 percent "for an extended
period" due to "low rates of resource utilization, subdued inflation trends and
stable inflation expectations."
The Fed's announcement comes during heated debate on when to start the so-called
exit strategies amid growing signs of economic recovery from the recession -- the
worst in decades -- that began late last year with the subprime mortgage crisis
on Wall Street.
Fed Chairman Ben Bernanke, awaiting Senate confirmation for his second four-year
term, Monday cautioned against exiting economic stimulus measures, citing a
fragile recovery and significant unemployment.
The Fed established the currency swap arrangements with South Korea, Mexico,
Brazil and Singapore late last year to help ease dollar funding for major
emerging economies in the global financial crisis.
Washington also 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 bilateral currency swap of up to US$30 billion with South Korea greatly
helped clear lingering suspicions of possible liquidity problems for the world's
14th biggest economy at that time, although South Korean officials said they
actually did not need such a currency swap because of the nation's ample foreign
exchange reserve.
The initial six-month swap line with South Korea has been extended twice.
South Korea's foreign reserves hit a record high last month with US$270.89
billion due to surging exports helped by the weak Korean currency and fast
economic recovery, which is likely to bring its growth rate into positive
territory this year and up to five percent next year.
The currency swap by the Fed and similar facility by the IMF followed calls by
emerging economies for the U.S. and other advanced economies to cooperate closely
with developing countries so they could muddle through the U.S.-initiated
financial meltdown.
China, which has the greatest 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
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