"Frequent Contact with Powell" Lee Ju-yeol's Network Worked

Behind the Scenes of the Korea-US Currency Swap

[Image source=Yonhap News]

[Asia Economy Reporters Eunbyeol Kim and Sehee Jang] The background behind the Bank of Korea and the U.S. Federal Reserve (Fed) abruptly entering into a currency swap agreement includes the Fed's swift decision-making and the close relationship between the Korean foreign exchange authorities. Recently, the Fed has been acting quite quickly to quell financial market instability caused by the novel coronavirus disease (COVID-19), and the currency swap was one of the contingency plans. The Fed introduced measures such as an unexpected interest rate cut and the establishment of a commercial paper (CP) purchase facility. The global networks of Bank of Korea Governor Lee Ju-yeol and Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki also played a role.

According to the Bank of Korea and the Ministry of Economy and Finance on the 20th, Governor Lee and Fed Chair Jerome Powell met during the G20 Finance Ministers and Central Bank Governors Meeting held in Riyadh, Saudi Arabia, on February 22-23. Since COVID-19 was beginning to spread extensively in Korea at that time, Chair Powell reportedly asked Governor Lee in detail about Korea's situation and financial market movements. Governor Lee told reporters on his way to work that day, "We agreed to exchange opinions frequently on issues such as Korea's market situation," adding, "We also had conversations during the Bank for International Settlements (BIS) conference call, and a relationship has been established where I can exchange opinions with Chair Powell regularly." Governor Lee, as a BIS board member, has met Chair Powell at BIS Governors' meetings approximately every two months.

The practical aspects progressed rapidly this week. The Bank of Korea's Deputy Governor in charge and Fed International Finance Director Bass and Wilson discussed details over the phone. Since face-to-face contact was difficult due to COVID-19, they seemed to have agreed to announce the agreement first to stabilize the market before proceeding with procedures such as signing documents.

[Image source=Reuters Yonhap News]

The government also provided comprehensive support. Early this week, Deputy Prime Minister Hong personally sent a letter to U.S. Treasury Secretary Steven Mnuchin to assist negotiations. Hong reportedly conveyed a letter to Secretary Mnuchin stating, "Global international cooperation is important to overcome COVID-19," and "a financial safety net such as the Korea-U.S. currency swap is necessary." Heo Jang, Director General of International Economic Affairs, also reportedly called the U.S. Treasury Undersecretary to explain Korea's situation. Deputy Prime Minister Hong served as a security officer at the Washington Embassy when Korea and the U.S. first signed a currency swap in October 2008. After persuading the U.S. for 2-3 years, Korea was included among the major countries eligible for currency swaps.

Meanwhile, the Bank of Korea expressed its intention to put all possible cards on the table under the Bank of Korea Act to respond. Governor Lee said, "At least, we will prevent financial institutions from failing to perform their roles due to liquidity shortages." Kim Yong-beom, First Vice Minister of the Ministry of Economy and Finance, said at the Innovation Growth Strategy Review Meeting and Policy Review Meeting that day, "It will serve as a solid safety net to stabilize the domestic foreign exchange market, which was affected by global financial instability."

This content was produced with the assistance of AI translation services.