Korea signs a currency swap agreement with Canada

Korea has signed a currency swap agreement with Canada, whose currency is classified as a quasi-key currency. The agreement is a standing type of contract that allows Korea to borrow Canadian dollars at any time as necessary in emergency situations such as a financial crisis.

It is the first time for Korea to sign a currency swap agreement that has no ceiling or maturity in funding with a foreign country. This will be an opportunity for Korea to enhance its standing in the international financial market, a stark contrast to its past when it was bailed out by the International Monetary Fund two decades ago.

The Bank of Korea and the Bank of Canada announced Thursday that both parties signed the agreement in Ottawa, Canada on the previous day. The contract will take effect immediately.

A currency swap agreement allows provision of financial liquidity from each country in the event of an economic crisis. Both countries’ central banks explain that the purpose of the agreement is to enhance financial market stability. “This arrangement is the most significant sort of its kind since the Korea-U.S. currency swap agreement (signed in October 2008),” said Bank of Korea Governor Lee Ju-yeol.

The Korean won soared Thursday, as the currency swap agreement enforced stability of the currency. The Korean won-dollar exchange rate closed at 1,101.4 won per dollar, 10.9 won lower compared to the previous day. During the day, Korean won was trading at under 1,100 won to the greenback, the first in 14 months.

source : the dong-a ilbo