Korea-Japan currency swap restored in 8 years

South Korea and Japan will resume currency swaps that have been suspended due to historical disputes. At a meeting held in Tokyo on Thursday, finance ministers from Korea and Japan agreed to restore a currency swap worth 10 billion dollars. It has been eight years since the currency swap ended in 2015. The two countries also agreed to expand cooperation in areas such as revitalizing mutual financial investment, regional financial safety net, and international taxation.

The resumption of the Korea-Japan currency swap can be seen as a symbolic measure to restore the financial cooperation channel that had been severed and to show the recovery of bilateral relations. Since Korea maintains foreign exchange reserves of over 420 billion dollars, the possibility of an immediate foreign exchange shortage is low. Still, the effect on the financial market is significant just by securing a safe recourse for liquidity supply in case of emergency. Since this swap is concluded entirely in dollars, it can also help secure dollar liquidity in case of an emergency.

It is true that economic cooperation between Korea and Japan has continued to oscillate whenever diplomatic conflicts arise. As for the currency swap, the Korean government requested the resumption in 2016 after the swap, but discussions did not progress as Japan suspended negotiations over the comfort women statue issue. It is in the interest of both countries that they are now removing economic barriers one by one and restoring relations. Since South Korea presented a solution to forced labor in February, the two countries have held summit talks, resumed shuttle diplomacy, and lifted mutual export restrictions in a sequential order.

Suspension of economic cooperation, which is hampered by political and diplomatic variables, will inevitably cause damage to both countries. Japan's four-year exclusion of South Korea from its whitelist also posed a burden on domestic companies and was met with criticism internally as a "failure in trade policy." Moreover, now is a time when the global economic structure is rapidly changing due to the economic block caused by the U.S.'s containment of China and the race to secure the global supply chain. Amid the rapidly changing international situation due to the intensifying new Cold War, both countries are being asked for close cooperation. This is why even in the event of diplomatic friction, cooperation must be maintained in the area of the economy. Economic cooperation between the two countries, which has been restored with difficulty, should not recur due to an attempt to “weaponize the economy.”