Via the Chosun:
Korea and the United States signed a currency swap agreement involving billions of dollars on Wednesday. The two countries will now be able to exchange their currencies in emergencies, allowing Korea to secure dollar supplies in case of a foreign currency liquidity shortage.
This strikes me as a win-win deal. Korea gets to grab dollars to help deal with currency emergencies like the one we have been looking at lately. Since is it designed to help several emerging markets (it is also offered to Brazil, Mexico, and Singapore) when they run into problems, it is likely that those countries will use the mechanism while their currencies are in trouble and swap it back once things have stabilized. In other words they will buy dollars high and sell them low, making a nice little profit for the USA on the exchange rate differences (any in-house economists here, please correct me if I am wrong on that one).
The deal is good through April 30.
The value of the won jumped 14% on news of the deal. I am sure that more than a few English teachers in Korea who are paying off their students loans will have kind words for Fed Chairman Ben Bernanke.
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1249…That’s practically back to normal if you consider 1000/$ as being on the high side.
Makes me wonder…How will the LMB-haters spin this one?
That’s a great deal for Korea, but it does make me wonder what circumstances would require the U.S. to seek out a massive infusion of Korean won
The underlying problem is debt of all kinds. Currency manipulative moves only redirect attention from this real problem. Until people can get money to spend again and until the country reduces balance of payments problems the won is going down….up and down. but down.
“Korea gets to grab dollars to help deal with currency emergencies like the one we have been looking at lately.”
Actually this means Korea gets to do what it wants with no (or at least delayed) market pressure to change.
“swap it back once things have stabilized”
I must ask what happens if things do not stabilize? That is a possibility and that 30 billion is then bye-bye. Thanks Uncle Sam!
The point missed is that when there is pressure on a currency it is for good reasons. Korea needs to change the business climate here.
Quote of the day: “Outside a Coffee Bean in Sinchon Thursday evening, the news was welcomed by English instructors like Sandra Tilli, who said dryly: ‘the best thing the Korean and American governments have done together since, like 1953.’”
From: http://ratemyhagwon.com/2008/1.....ange-rate/
Quote of the day: “Outside a Coffee Bean in Sinchon Thursday evening, the news was welcomed by English instructors like Sandra Tilli, who said dryly: ‘the best thing the Korean and American governments have done together since, like 1953.’”
From: http://ratemyhagwon.com/2008/1.....ange-rate/
Quote of the day: “Outside a Coffee Bean in Sinchon Thursday evening, the news was welcomed by English instructors like Sandra Tilli, who said dryly: ‘the best thing the Korean and American governments have done together since, like 1953.’”
From: http://ratemyhagwon.com/2008/1.....ange-rate/
(2.) “Makes me wonder…How will the LMB-haters spin this one?”
Silly rabbi, kicks are for trids…
It’s all the fault of the EVIL right (which actually accomplishes things while the lefty *ssh*ts have protests and don’t do anything useful).
The hippies have nothing to offer aside from calls for “Bring on Castro” Or Kin Il-Sung!!! Or whoever is in charge!!”
Andy… you didn’t give U-81 his HT!..
Andy… you didn’t give U-81 his HT!..
No you did not even though I beat you by at least 24 hours.
http://www.rjkoehler.com/2008/.....ent-198627
Or cm, who beat you by 12 hours.
http://www.rjkoehler.com/2008/.....ent-198704
I’m very disappointed. Especially because I’ve been so supportive of McCain’s prospects for winning who I think is your party’s candidate.
But what do we expect from the
Brian Deutsch blog feedMarmot’s Hole?Currency manipulative moves only redirect attention from this real problem.
Yes and no I think. Yes there is change to be made and this is a wakeup call but when the currency is in freefall it creates bigger problems and those longterm problems can’t easily be fixed anyway.
Quote of the day: “Outside a Coffee Bean in Sinchon Thursday evening, the news was welcomed by English instructors like Sandra Tilli, who said dryly: ‘the best thing the Korean and American governments have done together since, like 1953.’”
Not true! Under government sponsorship Samsung and Texas Instruments co-created an army of sexbots that took over the Democratic People’s Republic of Korea and… oh, sorry, that doesn’t happen until 2011.
That’s funny but I would have expected better syntax from an English teacher, like for sure.
I realize that y’all were joking about the hat tip (at least Wangton was joking) but there is no need to HT if the writing in question got his information from a different source than the comment, especially since (in this case) I never saw those comments.
I realize this comment makes me look hopelessly uptight but the hat tip is one of those little bits of netiquette that is still evolving.
Hear hear Andy.
U-81, stop your crying…
“In other words they will buy dollars high and sell them low, making a nice little profit for the USA on the exchange rate differences (any in-house economists here, please correct me if I am wrong on that one).”
You are essentially right.
Nice commentary here:
http://english.chosun.com/w21d.....10026.html
However, I disagree with the article that the reason why the US did the swap was because of its “confidence” in the Korean economy. I think an underlying reason was to prevent contagion.
I actually think it’s just more of a show. Korea gets the right to draw down $30 bil before April, if it wants, and it would certainly pay interest on that, but I think that’s all the Fed would earn. After all, Korea has a lot more than $30 bil already, and doesn’t really need the money.
Let’s say Korea drew down the whole $30 bil, and gave the Fed 39 trillion to hold onto (exchange rate of 1300/USD). Korea’s only obligation is to return the $30 billion upon expiry. 30 out, 30 in. The Fed has made nothing but interest.
You wonder if the Fed would get into some sort of F/X trading operation to make a profit? OK, so the Fed holds onto the 39 trillion won, waits for the won to come down to 1100, and buys $35.5 billion in USD. The only place it can do this is Korea, because nobody else would buy that much won in exchange for dollars. But if the Fed tried selling that much won here, it would just weaken the won again and pull dollar liquidity out of the Korean market – but that is the problem this whole swap deal is supposed to avoid. And in any case, it has to return the won to Korea when Korea returns the dollars.
So, I think it’s unlikely the swap will be used, and if it is, it’s unlikely the Fed will try to profit from it. It’s just an insurance policy, telling the world that Korea is not a default risk, that they will have access to dollars. It ought to help Korea’s credit ratings and keep its borrowing costs from getting too high.
Now, if it were Goldman Sachs who offered the swap to ROK, that would be different. GS would very much be getting into the deal to profit from currency moves. But that’s not the Fed’s game.
I was wrong.
S.Korea to make first use of US currency swap deal
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