S Korea, U.S. agree to extend currency swap by 6 months

Special Report:Global Financial Crisis

SEOUL, Feb. 4 (Chinese media) -- The Bank of Korea (BOK)

announced on Wednesday that it agreed with the U.S. Federal Reserve to extend

the currency swap deadline by six months in order to relieve market shake-ups

over dollar shortages.

The central bank said that the deadline, which was

set to expire on April 30, will be extended until Oct. 30. The size of the swap

facility is left intact at 30 billion U.S. dollars.

"This action of extending its swap agreement with the

Federal Reserve should contribute to improving the foreign currency funding

conditions of banks and restoring stability to the financial market in Korea,"

the BOK said.

The arrangement is the Federal Reserve's move on

continuous global market shake-ups over dollar shortages in the wake of Lehman

Brothers' bankruptcy, according to Yonhap.

The Fed also decided to extend the currency swap

deadline of 12 other central banks. The Bank of Japan will decide whether to

apply the extension at its next monetary policy meeting.

Thus far, the use of South Korea's swap arrangement

with the U.S. has helped alleviate market fears on declining foreign reserves in

South Korea, Yonhap said.

"When necessary, the BOK will continue to offer

dollar liquidity to banks through competitive auctions by tapping the swap

facility," Ahn Byung-chan, head of the central bank's international bureau,

said.

In a related move, South Korea in late December last

year reached new currency swap deals with China and Japan to increase the size

of its existing swap lines to 30 billion U.S. dollars.

The swap deal with China, which is still open to

extension agreements, will be effective for three years, while that with Japan

expires at the end of April.

"As the swap arrangement with the U.S. is extended,

the BOK expects there will be no major difficulties in extending a deadline with

the Bank of Japan," Ahn said.