It became known on the 14th that the government proposed an "unlimited Korea-U.S. currency swap" during trade and commerce talks with the United States.
According to the presidential office and government agencies, the Korean government recently proposed to the United States the conclusion of an unlimited currency swap.
A currency swap is a kind of "interstate overdraft account." After depositing one's own currency with the other country, one borrows the other country's currency at a pre-agreed exchange rate.
In Jul., Korea and the United States agreed to lower the 25% reciprocal tariff that the United States was to impose on Korea to 15%. In return, Korea agreed to invest a total of $350 billion (about 488 trillion won) in the United States.
Since then, as detailed negotiations have proceeded, the United States has been demanding that Korea increase the share of direct cash investment. If Seoul accepts the U.S. demand, a large outflow of dollars could drive up the won-dollar exchange rate.
If an unlimited currency swap is concluded, it could serve as a mechanism to calm market anxiety.
However, some analyze that Korea's call for a currency swap may end up as a bargaining chip in response to U.S. pressure for direct investment, citing the practical difficulty of concluding a currency swap. Korea and the United States have concluded currency swaps twice, limited to crisis situations such as the 2008 global financial crisis and the 2020 novel coronavirus disease (COVID-19) pandemic.