Question: What is the purpose of PBC-BOK currency swapand of the tripartite regular meeting mechanism of the central bank governorsof China, Japan and South Korea
Answer: On December 13, Premier WEN Jiabao attended the summit of leaders of China, Japan and South Korea. The Joint Statement accorded at the summit emphasized the significance of further beefing up regional cooperation to copewith the volatilities in the financial market and advocated to expand bilateral currency swap between the three countries. A few days ago, it was declared that the tripartite regular meeting mechanism of central bank governors of China,Japan and South Korea was established and the People’s Bank of China and the Bank of Korea (the Korean Central Bank) have signed a currency swap framework agreement involving RMB 180 billion yuan/ 38 trillion Korean won, which is aconcrete measure taken to implement the proposals made at the summit,contributing to maintaining regional financial stability and facilitating regional trade and investment.
Question: What is the background of PBC-BOK currency swap?
Answer: The PBC-BOK currency swap agreement is are markable step forward taken by emerging market economies in handling the financial crisis. The arrangement is, on the one hand, beneficial to boosting market confidence in China and South Korea, as the move demonstrates both parties’ willingness to further cooperation, and on the other hand, conducive to financial stability and economic development in the region as well as the financial stability in the world.
Question: How can the agreement benefit both parties?
Answer: As the financial crisis deepens, the currencys wap arrangement will help China and South Korea acquire short-term liquidity support from each other and better safeguard financial market stability of both countries. China and South Korea enjoy close links inbilateral trade, with China being South Korea’s number one trading partner while South Korea being China’s number six. The arrangement will bring stronger demand of the two countries for imports from the other party,encourage export-oriented enterprises in China and South Korea to avert exchange rate risk and reduce exchange cost, and will further spur bilateral trade. Through the agreement, China and South Korea can provide financing facilities to branch offices of domestic financial institutions operating in the other party, so as to alleviate their potential liquidity shortage andmaintain the financial market stability in both parties.
