November 28, 2024

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The Bank of Korea (Yonhap)

South Korea and Australia have agreed to extend their currency swap agreement by another five years, in a bid to continue to increase trade and improve financial stability.

Under the extension, the Bank of Korea and the Reserve Bank of Australia can exchange their local currencies up to 9.6 trillion won or 12 billion Australian dollars ($7.69 billion). The deal follows the previous agreement made in February 2020.

The initial currency swap agreement between South Korea and Australia was sealed in 2014 and had twice been renewed for three year periods, in 2017 and 2020.

The latest agreement will last five years, as both countries shared the stance that the currency swap attributed to increased bilateral trade and financial stability, the BOK said.

A currency swap deal allows the entities to borrow foreign currency in exchange for its domestic currency at a predetermined rate during times of financial crisis. It helps hedge currency risk by guaranteeing a flow of foreign currency for foreign reserves at a certain price.

The deal will last until 2028 and can be extended when the expiration date nears. All terms from the previous agreement will be maintained, the BOK said.

Meanwhile, South Korea is currently under currency swap agreements with eight countries, including Canada, Switzerland, China, Malaysia, Indonesia, the United Arab Emirates and Turkey, along with Australia.

It is also part of the Chiang Mai Initiative Multilateralization, a regional currency swap arrangement, together with Japan, China and the ASEAN member states.

Korea's contracts with Malaysia and Indonesia are about to expire in February and March, respectively, prompting the BOK to begin discussions on extending the contracts with the two countries.

By Im Eun-byel (silverstar@heraldcorp.com)