SEOUL (AFP) -A 14-year-old currency swap accord between Japan and South Korea will not be renewed when it expires later this month, the Bank of Korea said Monday, amid souring bilateral ties.
The $10 billion agreement, originally set up in 2001 and aimed at helping tide one another over financial crises, will end February 23, the central bank said in a statement.
At the same time, both sides have agreed to cooperate in “an appropriate manner as the need arises”, it added.
Over the years, the two countries routinely adjusted the size and details of the agreement, which expanded to as much as $70 billion in 2011 after a series of global crisis, including the collapse of investment bank Lehman Brothers and the eurozone debt crisis.
The swap ceiling was slashed the following year as bilateral ties went into a downward spiral after a long-running territorial row flared up and exacerbated other long-standing historical disputes.
At the time, both Seoul and Tokyo sought to play down any diplomatic motivation, saying the move was based purely on financial and economic factors.
The accord allowed each country to use their respective currencies to get US dollars from the other side at a pre-determined rate.
“The decision was made in consideration of our improved economic and financial conditions,” a BOK official told AFP.
“Our forex holdings are high, so there is no need to extend the pact,” he said.
South Korea’s foreign currency reserves stood at a healthy $362 billion at the end of January.
The writing had been on the wall for the swap accord for a while.
In October last year, Japanese finance minister Taro Aso said the pact would not be renewed unless South Korea requested it.
Relations between the two main US military allies in Asia are currently at their lowest ebb for years, dogged by issues related to Japan’s 1910-45 colonial rule over the Korean peninsula.