After returning from high-level trade talks in New York with U.S. Commerce Minister Howard Lutnick, Minister Kim Jeong-gwan of the Ministry of Trade, Industry and Energy said the status of the talks is "still very fluid." At a meeting with the press held at a restaurant in Sejong on the 16th, Minister Kim said, "The U.S. side puts forward a proposal that makes you think, 'Does this make sense?' From the U.S. perspective, there are also unreasonable elements in the plans we propose. These kinds of proposals are being traded toughly."
The "unreasonable plan from the U.S. perspective" that Minister Kim mentioned appears to refer to the "unlimited currency swap" that Korea recently proposed to the U.S. side.
The government proposed an "unlimited currency swap" as a safeguard to prevent a foreign exchange crisis that could arise during the process of making a large-scale $350 billion (486 trillion won) investment, but the prevailing view is that the U.S. side is very unlikely to accept it.
Experts analyzed Korea's proposal for an unlimited currency swap as "a strategic card aimed at securing the upper hand in talks and adjusting investment terms by presenting conditions that the U.S. government would find hard to accept."
According to reporting compiled on the 17th from the Ministry of Economy and Finance and other sources, four-party consultations are required for Korea and the United States to conclude a currency swap. On the Korean side, the Ministry of Economy and Finance and the Bank of Korea must agree, and on the U.S. side, the Department of the Treasury and the Federal Reserve (Fed) must agree.
The U.S. Fed currently concludes currency swap contracts with countries other than the European Union (euro), the United Kingdom, Japan, Switzerland, and Canada only in emergencies such as an economic crisis. Currency swaps with countries that do not issue key currencies are executed when there is a diagnosis that a shortage of dollar liquidity could trigger a financial crisis and that the spillover effects could negatively affect the U.S. economy.
Past Korea-U.S. currency swap agreements are a representative example. Korea and the United States concluded swap contracts twice in total: $30 billion from 2008 to 2010 during the global financial crisis, and $60 billion from 2020 to 2021 during the COVID-19 pandemic.
However, the plan proposed by the Korean government this time is an "unlimited currency swap" that is unrelated to an economic crisis and has no cap. The dominant assessment is that it is unlikely the two countries' Central Banks would conclude a currency swap for the purpose of facilitating industrial investment.
Recent friction between the Trump administration and the Fed is also cited as a factor reducing the likelihood of concluding a currency swap. President Donald Trump has been strongly demanding a cut to the benchmark interest rate to ease Government Bonds interest burdens and stimulate the economy, but the Fed is responding cautiously out of concern over inflation.
Pressure over personnel appointments to the Fed's Board of Governors is also continuing. Trump has been criticizing Fed Chair Jerome Powell daily for refusing to cut the benchmark rate and is urging him to resign.
He is also exerting pressure to fill the seven-member Fed board with his own people. Last month, he attempted to dismiss Fed Governor Lisa Cook, appointed under the previous Biden administration, by raising allegations of mortgage loan fraud, but it fell through due to a court decision.
Experts say that in a situation where the Trump administration and the Fed are in sharp conflict, there is almost no chance the unlimited currency swap proposed by the Korean government will be concluded.
Seok Byung-hun, a professor in the Department of Economics at Ewha Womans University, said, "The likelihood that the United States will conclude an unlimited currency swap with Korea is extremely small," adding, "Even if the Trump administration says it will accept it, procedures are needed to obtain the Fed's consent. Given the current U.S. political and economic situation, the Fed will not agree."
Yang Jun-seok, a professor in the Department of Economics at the Catholic University, said, "A large-scale swap could affect inflation, so the Fed is highly likely to oppose it."
Some interpret the government's move as a strategy to seize the initiative in negotiations by proposing a plan that the United States would find hard to accept. The idea is to impress upon the U.S. side that investing $350 billion—about 85% of Korea's foreign exchange reserves—over a short period is unrealistic, and to reduce the size of the cash investment.
In the worst case, there is speculation that the United States could reset tariff talks to square one on the pretext that it has not put a system in place.
Woo Seok-jin, a professor in the Department of Economics at Myongji University, said, "The government's mention of an unlimited currency swap may be for appearances," adding, "It's building up to 'let's pay a 25% tariff and endure,' and if the talks don't conclude, it is saying there is no choice but to accept a 25% tariff." Professor Seok Byung-hun also said, "Using the failure of an unlimited currency swap as a reason to renegotiate trade talks from scratch is also a fully viable card."
Some say the government's strategy is reckless. Heo Jun-young, a professor in the Department of Economics at Sogang University, said, "Going with the approach of 'if you don't give us a currency swap, we can't invest' is too risky," adding, "There is an alternative of concluding a currency swap with a set limit and setting the annual investment size within the swap's scope."
Kim Sang-bong, a professor at Hansung University, also said, "No timeframe has been set regarding the $350 billion investment. Even if the United States asks for it in a lump sum, it is not an amount we can provide at once," adding, "It would be possible to conclude a currency swap of $30 billion per year and proceed with long-term investments within that limit."