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2017-11-17 16:29
Around this time 20 years ago, Korea was sliding into its worst financial crisis as its foreign currency reserves dried out with no help in sight. 

The nightmarish experience of a near state default has since forced Seoul to fatten its foreign exchange pocket while securing currency swap deals with a maximum number of countries.

A currency swap ― often compared to a deficit account or overdraft for individuals ― is a tool for defending against financial turmoil by allowing a country beset by a liquidity crunch to borrow money from the other with its currency.
It is more than welcome that in this regard Korea established a currency swap line with Canada on Wednesday, securing an additional “safety net” against any possible financial crisis, as Finance Minister Kim Dong-yeon put it.

The Korea-Canada currency swap deal is especially significant for more than a few reasons.
First, it is a “standing agreement” ― which set neither a deadline nor ceiling ― meaning the Bank of Korea can borrow Canadian dollars from the Bank of Canada without minding maturity or limits. Koreans might recall how their government was anxious to extend the contract period of a similar deal with China last month, or how Japan discontinued an agreement with Korea in apparent retaliation against Seoul’s claim over Dokdo Islets in 2012.

Second, the Canadian dollar is one of the six reserve currencies along with the U.S. dollar, euro, Japanese yen, British pound and Swiss franc. Wednesday’s arrangement is the same type of currency deal that has been in place among the six countries. That, in turn, means Seoul can “indirectly” enjoy the effects of the network of the bilateral swap lines among the six regions.

Third, the bilateral deal will further accelerate trade cooperation between the two countries. Korea is Canada’s ninth-largest trading partner, and Canada is Korea’s 21st-largest trading partner.

Korea has foreign reserves of $384.4 billion, the ninth largest in the world and almost 20 times larger than the $20.3 billion it had 20 years ago.

As far as currency stabilization is concerned, however, this country can’t help but become like a burnt child who dreads the fire, and therefore the more stable, the better.


 

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