Posted October. 09, 2017 11:26,
Updated October. 09, 2017 11:52
South Korea’s economic diplomacy is standing on the brink of a precipice. The United States and China are putting direct and indirect pressure on Korea, a small open economy, by exerting their hard power. While the United States is raising the trade barriers for Korean products, this time China has emerged as one of the biggest variables to the Korean economy. The expiration of Seoul-Beijing currency swap contract is just around the corner, but the decision for extension is still being delayed.
South Korea’s financial and monetary policymakers have not extended the bilateral currency swap deal worth 56 billion dollars (64.4 trillion won), which is set to expire Tuesday, according to the Bank of Korea and the Ministry of Finance and Strategy on Sunday. The financial market is on alert due to the possibility that there will be no extension.
The slowing of the decision to extend the currency swap is said to be largely attributable to China’s retaliation over the deployment of Terminal High Altitude Area Defense (THAAD), a U.S. anti-ballistic missile defense system, in Korea. The Korean financial authorities said that working-level negotiations on the extension have already reached the closing stage, but the Chinese leadership who makes a political judgement, is hesitating to make the decision.
If the contract is not extended, a possibility of a negative impact on the Korean economy cannot be ruled out. Korea-China currency swap line accounts for 45.8 percent of the total currency arrangements that Korea currently has with other countries. A trade dispute with the United States such as the revision of the Korea-U.S. FTA is highly likely to have a negative impact on Korean manufacturing, notably, automotive and steel. Similarly, a failure in Korea-China currency swap extension may hurt the country’s financial market and credit ratings.