The South Korean and Australian Central Banks Renew Their Currency Swap Agreement

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Australian and South Korean central banks announced an extension of the currency swap arrangement between their respective monetary authorities.

A currency swap agreement between the South Korean central bank and its Australian counterpart was renewed on Monday for up to 5 more years. The contract is for five years until early 2028 and is worth 9.6 trillion won or A$12 billion.

According to English News, the BOK said, “The two countries shared a view that the currency swap agreement contributed to increased trade and financial market stability.”

South Korea, Australia Central Banks

In an agreement that has now been extended for five more years through February 5, 2028, the South Korean central bank and the Reserve Bank of Australia will continue to swap the Korean won in exchange for the Australian dollar.

A foreign exchange swap is an agreement concerning a financial transaction between two participants. According to this agreement, the two counterparties exchange specific amounts of two different currencies at the outset and repay at a future date according to a predetermined rule reflecting both interest payments and amortization of the principal.

South Korea is Australia’s largest trading partner. The Reserve Bank of Australia (RBA) and the Bank of Korea (BOK) have renewed their currency swap agreement. The bilateral agreement will provide a source of liquidity for the Australian currency market.

The two banks have been operating a currency swap arrangement since 2014, when the RBA began paying interest on its outstanding notes. Under the terms of this agreement, either party can exchange funds in their currency for the other currency. Over the years, the Reserve Bank of Australia and the Bank of Korea have renewed this agreement several times.

According to Central Banking, “This agreement is designed to promote bilateral trade for the economic development of the two countries.”

The Korean won has strengthened against the Australian dollar, which is expected to benefit Australian exports and tourism and boost activity in the housing and financial services sectors.

This will strengthen Australia’s ability to manage fluctuations in its current account and keep inflation low.

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