S.S., S.Korea agree to implement liquidity facilities

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S.S., S.Korea agree to implement liquidity facilities

SEOUL Reuters -- The United States and South Korea agreed on Saturday to implement liquidity facilities to stabilise financial markets if needed, Korea's finance ministry said after a teleconference between finance chiefs of the two countries.

The won is close to its lowest level since March 2009, and has weakened 17% against the surge in the US dollar so far in 2022, due to a sell off in emerging market currencies as the Federal Reserve raises interest rates.

The ministry said in a statement after the call between the U.S. Treasury Secretary Janet Yellen and South Korea finance minister Choo Kyung-ho, the two countries are ready to work together to implement liquidity facilities when necessary.

The agreement reached on Saturday repeats the U.S. statement when Yellen visited Seoul in July, amid growing calls for the Bank of Korea to arrange a currency swap with the Federal Reserve to stabilise the dollar-won market.

The statement released on Saturday did not elaborate on whether the facilities may be deployed were referred to as a currency swap, and South Korea's finance ministry did not give any further details.

A $60 billion currency swap pact between the central banks of the two countries was set in March 2020 as an emergency step to stabilise markets. It expired at the end of last year.

In exchange for won, a swap would allow South Korea to borrow a certain amount of U.S. dollars for a pre-set period and rate, in exchange for won, in order to solve problems with dollar liquidity.

South Korean authorities have recently arranged a $10 billion currency swap program with the country's state-owned pension fund to allow the fund to finance overseas investment with the central bank's FX reserves, rather than buying dollars in the spot market, to help protect one of the world's worst performing currencies.