China, ROK central banks sign currency-swap deal

(Xinhua/chinadaily.com.cn)
Updated: 2008-12-12 15:23

BEIJING -- The central banks of China and the Republic of Korea (ROK) signed an agreement on Friday to expand their currency swap, which involved 180 billion yuan (US$26.3 billion), China's central bank said.

The agreement set an upper transaction limit of 180 billion yuan ($26.3 billion) or 38 trillion Korean won (about US$28 billion), the People's Bank of China (PBOC, China's central bank) said on its website.

A South Korean bank clerk works with bundles of foreign currencies at the head office of Korea Exchange Bank in downtown Seoul, South Korea, Friday, Dec. 12, 2008. South Korea's central bank says it has established a new currency swap agreement with the People's Bank of China. [Agencies]

The PBOC said the three-year agreement could be extended by mutual agreement.

The two central banks currently have a separate swap agreement worth $4 billion.

The swap agreement is intended to provide short-term liquidity support to banking systems in both economies and support bilateral trade, it said.

The two sides also agreed to discuss the possibility, and the proportion, of changing the swap currencies into forex reserves, it said.

The PBOC said the swap agreement supplemented an earlier one under the Chiang Mai Initiative, which was signed in that Thai city in May 2000.

The initiative aimed to set up a network of currency swap agreements among the 10 members of the Association of Southeast Asian Nations and China, Japan and the ROK, which was designed to stabilize currencies in time of financial crises.

The agreement comes a day before the leaders of South Korea, Japan and China were to meet in Fukuoka to discuss global financial turmoil.

Premier Wen Jiabao, South Korean President Lee Myung-bak and Japanese Prime Minister Taro Aso are scheduled to hold a summit in the Japanese city of Fukuoka Saturday.

"Given the current financial crisis, cooperation among the three countries is of great significance," Foreign Ministry spokesman Liu Jianchao said yesterday. "We hope the three countries join hands to tackle the crisis."

The three East Asian economic powerhouses, which account for three-quarters of Asia's GDP and two-thirds of its trade, have held meetings on the sidelines of broader international gatherings but it's the first time they will be holding a separate trilateral summit.

"This is the launch of a regional mechanism," said Liu Jiangyong, an expert on Japanese studies at Tsinghua University. "In the past, the three met regularly only on the sidelines of the annual meetings of the Association of Southeast Asian Nations, typically in ASEAN+3 gatherings."

At a time when falling global demand is hurting their exports - key drivers of the three nations' growth - the meeting is expected to produce coordinated efforts to cope with the current crisis.

"Regional financial cooperation among the three countries will contribute to stabilizing the global financial market," Yan Xuetong, head of the Institute of International Studies at Tsinghua University, said.

China and South Korea witnessed a slowdown since the global financial meltdown intensified in the third quarter, while Japan is struggling in the face of a domestic political deadlock to keep its recession from becoming its worst ever.