Japan, China, South Korea mull expanded FX swaps
WASHINGTON (Reuters) - Japan, China and South Korea said on Friday they were considering expanding the size of currency swap arrangements between their countries, saying they should be prepared against risks of a further global slowdown.
South Korean won has been falling amid worries about the global recession's fallout on its export-driven economy, and Seoul is seen keen to boost a regional web of bilateral currency swap deals, called the Chiang Mai Initiative (CMI).
"We shared the view that enhancement of collaboration among the three countries is crucial to effectively address the global financial crisis," the finance ministers from the three nations said in a joint statement after a meeting in Washington.
"We concurred to explore an increase in the size of bilateral currency swap agreements among the three countries," they added.
The ministers met following a dinner with other finance ministers from the Group of 20 advanced and emerging economies, who are in the U.S. capital to discuss steps to tamp down the global credit crisis.
South Korean officials have been telling their Japanese counterparts that the CMI should be expanded, but a senior Japanese finance ministry official downplayed speculation that Seoul would need to activate its swap deals under the CMI soon.
"South Korea's foreign reserves is falling but we have not reached a point where we need to supply dollars to them," the official told reporters.
Under the current CMI, Tokyo can provide U.S. dollars worth up to $10 billion and Japanese yen worth up $3 billion to South Korea, while Beijing can offer up to $4 billion worth of Chinese yuan to Seoul.
The idea of the CMI is that a country facing a short-term liquidity shortage can borrow reserves from partners in the network to absorb any heavy selling pressure on its currency without having to resort to a damaging devaluation, as some countries did in the 1997 financial crisis.
None of these credit lines has been tapped so far.
Finance ministers from Association of Southeast Asian Nations (ASEAN) member nations along with China, Japan and South Korea (ASEAN+3) have been seeking ways to strengthen the CMI and transform it into a more powerful multilateral scheme.
Japan's Shoichi Nakagawa, Korea's Kang Man-soo and Xie Xuren of China also said they wanted to speed up that process, calling it "the top priority."
The ministers agreed to exert their efforts further to reach a consensus on controversial elements of the planned multilateral scheme, such as its size, how to activate them and how to strengthen the surveillance of member nations' economies.
"We also call for a review on strengthening the regional surveillance mechanism for effective monitoring on the regional economy and financial markets," the statement said.
The ministers said there would be a workshop on economic and financial stability on November 26 in Tokyo to enhance dialogue and exchange views among senior officials from their finance ministries, central banks and financial supervisory agencies. Continued...
