SEOUL (Reuters) – South Korea’s central bank governor said on Monday no discussions had taken place with the U.S. Federal Reserve on establishing a bilateral currency swap line, as it was not an appropriate tool to be considered for a trade deal.
Governor Rhee Chang-yong said it was irrelevant to the problems the country was facing, apparently referring to concerns about the foreign exchange implications of a $350 billion investment package included in its trade deal with Washington.
“Central bank swap lines are on a short-term basis, for six months at maximum, with costs, so are not considered an appropriate tool when it comes to investment,” Rhee said at a parliamentary session.
“If there is a different kind of swap, we will be able to assess if it is suitable after details are available on period and cost,” Rhee said, when asked by a lawmaker about his view on the possibility of a swap line with the U.S. Department of the Treasury.
Since South Korean officials expressed optimism about reaching a trade deal with the U.S. by this month, there have been local media reports that Seoul might be seeking an alternative kind of a currency safeguard, such as a swap line with the U.S. Treasury, also offered to Argentina.
“While uncertainty remains around a FX facility, we think recent headlines about Korea pursuing an Argentina-style Exchange Stabilization Fund (ESF) are less viable,” said Kathleen Oh, chief Korea and Taiwan economist at Morgan Stanley.
“A suitable option, in our view, is to secure a temporary standing network with the Fed, if not permanent, with a time frame similar to Japan’s MOU that specified the period of investments through January 2029,” Oh said in a report.
South Korea’s Presidential Policy Secretary Kim Yong-beom said on Sunday there was a higher chance of reaching a trade deal with the U.S. by this month, as he returned home after negotiations with U.S. Commerce Secretary Howard Lutnick.
U.S. Treasury Secretary Scott Bessent said last week he was surprised there was no currency swap line with South Korea, after Seoul requested a safeguard to mitigate the market impact of the investment package.
(Reporting by Jihoon Lee; Editing by Jacqueline Wong and Alexander Smith)
