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Korea, Japan decide not to extend currency swap line

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(Globalpost/GlobalPost)

SEOUL/SEJONG, June 24 (Yonhap) -- South Korea and Japan have decided not to extend the soon-to-be-expired won-yen swap facility worth US$3 billion, Korea's central bank said Monday, amid speculation the strained bilateral relations might affect the decision.

The Bank of Korea (BOK) said it and its counterpart in Japan have reached a decision to end the swap line, which is due to expire on July 3.

The decision led Korea and Japan to hold only the $10 billion currency swap line under the Chiang Mai Initiative, which is aimed at cushioning regional currencies from global turmoil.

The government said that any political or diplomatic consideration was not behind the decision amid strained bilateral relations following former President Lee Myung-bak's visit to Korea's easternmost islets of Dokdo last year.

"Korea and Japan have discussed whether to extend it, but as they did not see the need to do so, both Seoul and Tokyo have not requested the extension from each other," said an official at the finance ministry.

At the height of the 2008 global financial crisis, the BOK agreed with the Bank of Japan to expand its won-yen swap facility to $20 billion from $3 billion.

They expanded the total swap line temporarily to $70 billion in 2011, leading Seoul to exchange its own currency with safer assets such as the dollar and the yen.

But later, the amount returned to $13 billion last August when tensions between the two countries heightened over South Korea's islets of Dokdo.

Japanese media said earlier this month that Tokyo would not extend the currency swap contract unless Seoul asks for its extension.

A senior official at the finance ministry earlier said that whether to extend the swap line is a matter of bilateral financial cooperation, not something that has an impact on the local financial markets.

BOK Gov. Kim Choong-soo earlier said that as Seoul has not tapped the won-yen swap line and the volume of the $3 billion is not large, the end of the swap facility would not take on significant meaning.

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http://www.globalpost.com/dispatch/news/yonhap-news-agency/130624/korea-japan-decide-not-extend-currency-swap-line