Seoul: A foreign exchange swap between South Korea and the United States is seen as a beneficial safety net, although such an arrangement would be a sensitive and politically charged matter, according to a member of South Korea's central bank monetary policy board. Hwang Kul-il, a member of the Bank of Korea's (BOK) monetary policy board, shared this perspective during a meeting with reporters in Seoul, following the South Korean government's proposal for a foreign exchange swap line with the U.S. in recent tariff discussions with Washington.
According to Yonhap News Agency, Hwang emphasized the advantages of multiple currency swaps, noting their role as a safety net. However, he highlighted the sensitive nature of currency swaps, which involve complex negotiations and political considerations. Hwang remarked that while the matter should be handled discreetly, it remains a political issue rather than an economic one.
In July, South Korea and the U.S. reached an agreement where the U.S. would impose a 15 percent tariff on South Korean goods, as opposed to the initially threatened 25 percent. In return, South Korea agreed to create a US$350 billion fund for U.S. investments. Despite this, the two countries are still in discussions over the details, with no formal agreement in place.
President Lee Jae Myung recently cautioned of a potential economic crisis similar to the 1997 financial meltdown if current U.S. demands are accepted without safeguards. South Korea has previously established temporary currency swap lines with the U.S. during the 2008 global financial crisis and the 2020 COVID-19 pandemic, with limits of $30 billion and $60 billion, respectively. Hwang noted the significant impact of these measures.
Discussing the expansion of South Korea's foreign exchange reserves, Hwang supported the idea but warned that actions like buying dollars or issuing foreign exchange-linked bonds could influence the exchange rate and need careful management.
Regarding the BOK's monetary policy, Hwang suggested implementing an additional interest rate cut this year but did not specify whether it should occur in October or November. He expressed a preference for prioritizing financial stability in rate decisions, amid concerns over rising household debt.
The government's recent measures to curb rising home prices have had some effects, but the continued price increase in parts of Seoul remains an issue, according to Hwang. At its latest rate-setting meeting, the BOK maintained its key rate unchanged for the second consecutive time to ensure financial stability, with five of the six board members projecting a rate cut within the next three months.