The Korea-China currency swap line, worth 64 trillion won (360 billion yuan), will be made available to both Korean and Chinese companies for their bilateral trade settlements starting December 2012. The Bank of Korea (BOK) announced on December 4 that it has agreed with the People’s Bank of China (PBOC) to use proceeds of the existing currency swap deal to help finance trade between the two countries. Under this scheme, the BOK will provide yuan loans to banks in Korea, allowing Korean firms to use the Chinese currency to settle trade with China. Likewise, the PBOC will lend won to banks in China, allowing Chinese firms to use won to settle trade with Korea.

The BOK expects several benefits from this arrangement, such as reducing foreign exchange risks and transaction costs for companies and the further promotion of bilateral trade. Once the Korea-China currency swap-financed trade settlement facility takes root, the BOK will use it as a reference when it considers expanding its currency swap arrangements with other major Asian trade partners.

* Source : Ministry of Strategy and Finance and Korea Development Institute, Economic Bulletin Vol.34 No.12 (December 2012).
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