Summit could pave way for currency swap: analysts

National Security Office First Deputy Chief Kim Tae-hyo gives a press briefing on the Korea-U.S. summit scheduled on Saturday, at the presidential office in Yongsan District in central Seoul, Wednesday. He said consultation is underway between the two countries on cooperation on foreign reserves to the equivalent level of a currency swap. Yonhap

By Yi Whan-woo

A possible revival of an expired currency swap contract between Korea and the United States is raising hopes here, as the agenda to be covered during a scheduled summit between the leaders of the two countries in Seoul, Saturday, apparently prioritizes close links between the economy and national security.

But while it remains uncertain if a bilateral currency swap is on the agenda, Kim Tae-hyo, the first deputy chief of the National Security Office, fueled optimism over that possibility, Wednesday. "Consultation is underway concerning cooperation on foreign reserves to the equivalent level of a currency swap," Kim said."

Analysts contacted by The Korea Times say striking a deal is unlikely on the occasion of the summit.

They noted a currency swap is not as urgent as other economic security-related issues, such as Korea's envisioned entry into the U.S.-led Indo-Pacific Economic Framework (IPEF) and the U.S. quest to build a supply chain network for semiconductors and other strategic sectors in the trade war against China.

The analysts, however, speculated the summit, depending on its outcome, could pave the way for a resumption of a currency swap at some point during President Yoon Suk-yeol's term. The currency swap agreement expired under the previous Moon Jae-in administration in December of 2021.

"According to my understanding, it requires several stages before drawing a consensus for a currency swap and it may be unrealistic for the two allies to reach a conclusion this time," said Seo Jeong-hun, a senior researcher at Hana Bank.

Seo explained that it is too hasty to expect a currency swap deal to be reached, citing both security and economic reasons.

He viewed that mutual trust weakened between the two allies regarding security during the past five years, due to Seoul's strategically ambiguous stance between Washington and Beijing, as well as Korea's worsened ties with Japan, another U.S. ally in the region.

"It is Korea, not the U.S., that finds it necessary to resume the currency swap contract, and Washington is likely to cooperate only when it finds Seoul reliable enough through the summit," he said.

On the economic front, Suh explained, the signing of a currency swap deal during the summit can send the wrong signal to the market that Korea has an insufficient amount of foreign currency reserves, although that is not the case.

"This is an unwanted scenario," the Hana Bank researcher said.

He pointed out that many people addressed the need for a currency swap to stabilize market sentiment over the weakening won that took a beating against the dollar this year, in general, and not because Korea actually has a shortage of foreign currency reserves.

For instance, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said he finds a Korea-U.S currency swap "very important and positive in laying a safety board for finance."

Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute, assessed that the depreciation of the Korean won may continue and that a currency swap or relevant measures should be adopted to prevent an escalation of market volatility.

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