Experts call for government to sign more currency swaps with the U.S., ChinaThe expanded currency swap between South Korea and Japan is likely to bolster the value of the Korean won and help reduce its volatility, local brokerages said Thursday.
Korea and Japan announced on Wednesday their agreement to expand their currency swap volume to $70 billion from the current $13 billion in efforts to jointly stabilize financial markets amid lingering concerns over the global recession.
“The swap deal is designed to reduce the risks of a foreign reserve shortage, which in turn will limit the volatility of the Korean won,” said Jeon Min-kyu, an analyst at the Korea Investment Securities.
“In addition, the market is now accepting the deal as a positive signal that individual countries in Asia are trying to tackle the potential liquidity crunch through a cooperative deal,” he said.
The currency swap, the most tangible agreement from the summit between Korean President Lee Myung-bak and Japanese Prime Minister Yoshihiko Noda, came as Korea is struggling to prop up the Korean won in a series of selling sprees on its volatile foreign exchange market.
The won tumbled in the past month, recording a far higher depreciation than other comparable currencies, forcing the local authorities to implement heavy interventions, only to see a temporary recovery.
Local financial experts and the media are now urging the Korean government to strengthen the won by signing currency swap deals with key trading partners, including the U.S. and China, to protect the local currency against speculative attacks.
Jeon said the ongoing eurozone sovereign debt crisis, however, could limit the ascent of the Korean won, keeping his earlier estimate that it would hover at around 1,250 won against the greenback by the end of this year.
Shin Dong-seok, an analyst at Samsung Securities, said the won would likely gain value to 950 won to 1,000 won against the dollar within a year on the condition that advanced countries succeed in overcoming the current global recession risks with cooperative policies.
Under the agreement on Wednesday, Korea and Japan will increase their $3 billion won-yen swap facility to $30 billion and add a new $30 billion dollar-local currency arrangement. A separate $10 billion currency swap line will be maintained under the Chiang Mai Initiative aimed at cushioning regional currencies from global turmoil.
By Yang Sung-jin (
insight@heraldcorp.com)
