Koo Yun-cheol: “U.S. rejected South Korea’s proposal for a Korea–U.S. currency swap”

U.S. side: “You already have $1 trillion—why isn’t that enough?”

Koo Yun-cheol, Deputy Prime Minister for Economic Affairs and Minister of Economy and Finance, said on the 4th that the United States had rejected the South Korean government’s proposal for a Korea–U.S. currency swap.

Appearing that day before a National Assembly special committee convened to process a special act on investment in the United States, Koo responded to People Power Party lawmaker Park Sung-hoon’s question—“Should we understand that it’s not that our government won’t do a Korea–U.S. currency swap, but that it can’t?”—by saying, “Yes. We brought it up a few times (to the U.S. side), but the U.S. reaction was that ‘Korea isn’t short of foreign-exchange reserves; it has them on the order of trillions of dollars.’”

Koo further explained: “A currency swap is meant to fill a gap when Korea faces a shortage of foreign currency,” adding that, from the U.S. perspective, Korea is not short of foreign currency because it has more than $400 billion in foreign-exchange reserves, the National Pension Service has $500 billion, and the public holds $100 billion. “If you’re holding more than $1 trillion, why should we provide a currency swap?” he said, summarizing the U.S. view.

In an earlier line of questioning, Park pressed Koo on whether it would be appropriate to use the country’s foreign-exchange reserves for investment in the United States, noting that the won–dollar exchange rate had surpassed 1,500 won that day for the first time in 17 years. Park pointed out that “the $20 billion a year stipulated in the special act on investment in the United States is money that has been used to shield Korea’s FX market,” adding, “People are concerned about where and how the government will secure the resources that have been used to defend the exchange rate if $20 billion is sent to the United States every year.”

Ahn Dae-gyu powerzanic@hankyung.com