South Korea, U.S. remain locked in discussions to establish bilateral FX swap line

Koo Yun-cheol, Deputy Prime Minister of South Korea, said at a parliamentary session on Monday that South Korea and the U.S. government are engaging in discussions on various ways to establish a bilateral foreign exchange swap line. 

The setup is part of a trade deal aimed at addressing concerns about how proposed U.S. investments could skew the local currency market.

Koo Yun-cheol commented on the establishment of a bilateral foreign exchange swap line in response to a lawmaker. The lawmaker had inquired whether requesting a conditional swap line was necessary rather than an unlimited swap line.

South Korea reviews U.S. proposal to reshape $350 billion investment deal

Cho Hyun, Minister of Foreign Affairs of the Republic of Korea, said on Monday during a parliamentary audit of his ministry that South Korea is reviewing an alternative proposal presented by the United States. The plan outlines how Seoul would finance the $350 billion investment package reached as part of tariff negotiations with Washington.

U.S. President Donald Trump had earlier said that Seoul officials countered that the investment pledge was meant to finance projects rather than a cash transfer. Trump added that Seoul officials have urged the inclusion of conditions in the agreement, such as a currency swap. He emphasized that the investment package would be made “upfront.”

“If (we should put) all of $350 billion into direct investments in the U.S., this could cause a problem in the foreign exchange (market) and have serious repercussions on the economy.” 

–Cho Hyun, Minister of Foreign Affairs of the Republic of Korea.

Hyun added, “So we explained all of the (potential) problems to the U.S. side, and they have come up with a new alternative solution.”

Hyun’s comments coincided with Seoul and Washington’s efforts to resolve their disagreements over the specifics of the investment package. According to Hyun, the goal is to finalize a framework agreement in July that calls for a reduction in U.S. tariffs on South Korean goods from 25% to 15%.

The Minister of Foreign Affairs reaffirmed on Monday that South Korea cannot make direct cash investments in Washington. He noted that the U.S. had initially included loans and guarantees in the investment plan. 

According to Hyun, South Korea has also delivered to the United States. He claimed that South Korea’s “strong” will to modernize the alliance with Washington shows Seoul’s readiness to enhance its defense posture.

Hyun said that in Washington’s move to provide extended deterrence, the U.S. side has pledged to reconfirm the unwavering security commitment and strengthen bilateral cooperation.

U.S. and South Korea seek to strengthen alliance 

According to the Korea Times, the U.S. President Donald Trump’s administration aims to “modernize” the long-standing alliance with Seoul, with the goal of better deterring Chinese threats by allowing U.S. forces and assets stationed in South Korea to be deployed for operations outside the Korean Peninsula.

Vice Foreign Minister Park Yoon-Joo held talks with his U.S. counterpart, Allison Hooker, the U.S. Under Secretary of State for Political Affairs on Friday, on the modernization of the bilateral alliance. The alliance focused on stronger economic cooperation and addressing South Korea’s nuclear issues.

The U.S. Embassy in Seoul reported that the two sides reaffirmed the need to strengthen trilateral cooperation with Japan. Hooker and Yoon-Joo discussed the significance of modernizing the bilateral alliance and bolstering economic cooperation in sectors such as shipbuilding. The two also discussed energy, critical and emerging technologies, and critical mineral supply chains.

Hooker referred to the Seoul-Washington alliance as “the linchpin of peace, security, and prosperity on the South Korean Peninsula and across the Indo-Pacific.” 

Yoon-Joo and Hooker’s meeting took place in advance of the APEC summit, which is set to take place in Gyeongju, a city in South Korea, from October 31 to November 1.

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