The US Federal Reserve’s decision to terminate the currency swap line with the Bank of Korea will have little impact on the Korean economy, government and central bank officials said.
"I think the Federal Reserve decided to end currency swap lines as most of the global liquidity crisis has been resolved. It indicates that the Fed is confident about the world economy," deputy finance minister Shin Je-yoon told reporters in Gwacheon.
"As Korea has enough foreign exchange reserves and ample foreign liquidity, the end of swaplines will not affect the Korean economy at all," he said.
Bank of Korea’s international bureau head Ahn Byung-chan also told reporters in Seoul that thecurrency swap with the Fed ended as global and local financial markets have improved.
Ahn said the BOK will separately discuss extension of bilateral swap deals with its counterparts in China and Japan.
The Korea-Japan deal expires in February next year and the Korea-China accord has two more years to go.
The Fed said in a statement that it will close temporary liquidity swap arrangements with Korean and other central banks by February 1.
The BOK and the Fed agreed in October last year to establish a currency swap line up to US$30 billion to help ease the dollar drought in the banking system.
The expiration date was initially set on April 30, 2009 but was extended twice to October 31, 2009 and to February 1, 2010.
Other emerging countries which clinched temporary currency swap deals with the US in October include Mexico, Brazil and Singapore.
Out of the maximum $30 billion swap line, the central bank provided about $16.4 billion for local lenders, according to the BOK.
"As of today, the central bank completed retrieving the remaining $450 million swaps," Ahn said.
Seoul’s swap deal with Washington helped clear doubts on the Korean banking system’s liquidity problems.
Worries over a liquidity crisis in Korea led the local currency to plummet as much as 1,468 won to the dollar on October 28 last year.
However, the won shot up 177 won in one day on October 30 when the deal was clenched.
The local currency has stabilized to 1,160 won levels recently.
Yoon Il-kwang, analyst with Daewoo Securities, shared a similar view with the financial authorities that the termination of swap lines with the Fed will have little impact on the foreign exchange market.