BOK involved in US$7b swap

BOK involved in US$7b swap

Associted Press, Seoul, South Korea

The Bank of Korea on Friday signed local-currency swap agreements worth the equivalent of US$3 billion with the Bank of Japan and $4 billion with the People's Bank of China as part of a planned expansion of ties among Asian central banks.

The agreements fall under the Chiang Mai Initiative, which allows Asian central banks to borrow money from each other to cover short-term requirements during financial market shocks that could lead to a balance-of-payments crisis.

"This is indeed a memorable day for our three central banks as we open a new chapter of central bank cooperation with the strengthened trilateral currency swap network," Bank of Japan Governor Toshihiko Fukui said at a signing ceremony for the new agreements, according to text of his remarks distributed by the bank in Tokyo.

Larger swap agreements among the three banks are expected in future years, a Bank of Korea official said.

The signing ceremony comes after finance ministers from South Korea, Japan and China agreed at a meeting of Asian nations in Istanbul earlier this month to expand existing currency swap agreements, the South Korean central bank said in a statement.

The meeting involved the 10-member Association of Southeast Asian Nations plus China, Japan and South Korea.

Under the agreement between the Bank of Korea and the Bank of Japan, the two central banks may draw from the other's won or yen funds when there is a short-term liquidity crunch under normal circumstances to achieve financial stability.

The two already have a dollar-denominated currency swap agreement in place. That agreement was first signed in 1999 and was increased in size to $7 billion from $5 billion in 2001.

The Bank of Korea said the new $3 billion swap agreement has a slightly different purpose than previous swap contracts that were mostly aimed at preventing a balance-of-payments crisis.

"We expect to use these funds as a means to stabilize the currency market once the won/yen (foreign exchange) market develops," the bank statement said without elaborating.

Fukui said he hopes the local-currency agreements "will encourage greater flows of local-currency-denominated capital in the Asian region."

The agreement between the Babk of Korea and the People's Bank of China, which will replace a previous agreement worth $2 billion that matures June 24, allows the two banks to borrow either in yuan/won or in dollars from each other when they are short of foreign exchange.

The two banks already have a currency swap agreement worth the equivalent of $3 billion in which the two central banks can exchange yuan and yen. No changes or additions were made to that agreement on Friday.