China is showing positive signs of further liberalising its currency. Recently the worlds second largest economy opened up doors for Yuan forwards and is now boosting ties with South Korea.
South Korea and China have agreed to expand their currency swap agreement to the equivalent of $56.5 billion in the face of global uncertainty and financial turmoil.
The existing won-yuan swap arrangement reached in April 2009 was worth the equivalent of $33.5 billion at the current won-dollar exchange rate.
The central Bank of Korea (BoK) said its new deal with the People’s Bank of China would last until October 25, 2014.
The agreement came a week after South Korea and Japan signed a deal to increase their currency swap agreement to the equivalent of $70 billion from $13 billion.
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A currency swap allows central banks to exchange their currencies with each other in case of a liquidity crunch.
The new swap deals will help South Korea secure extra liquidity in a worst-case scenario, even though its own foreign exchange reserves stood at $303.38 billion at end-September.
“This measure will help reduce a negative impact, caused by growing uncertainty in global financial markets, on the economies of the two countries,” the BoK said in a statement.
Exchanges have also been opening doors to the export currency, CME group launched a Yuan denominated futures contract and SGX has started offering NDF’s.
All eyes are on who will take the spot of the next Chinese premier, Li Keqiang a prominent candidate is known to have liberal economic reforms.