Fed Reserve Extends FX Swap Line With 14 Central Bks By 3 Months

Fed Reserve Extends FX Swap Line With 14 Central Bks By 3 Months

SEOUL -(Dow Jones)- The U.S. Federal Reserve has agreed to extend bilateral currency swap agreements with 14 central banks by three months to Feb. 1, 2010 to help stabilize global financial markets and ease liquidity shortages, the Bank of Korea said Friday.

The extension of the reciprocal currency arrangements, set to expire Oct. 30, is aimed at helping the countries provide enough dollars in their respective financial markets, Korea's central bank said.

The move applies to central banks of Australia, Brazil, Canada, the Netherlands, England, the European Central Bank, Japan, South Korea, Mexico, New Zealand, Norway, Singapore, Sweden and Switzerland.

"The Bank of Korea expects that this action of extending its swap agreement with the Federal Reserve will contribute to continuing stability of the foreign currency funding market and financial market in Korea," the BOK said in a statement.

In October last year, the BOK and the Federal Reserve signed a six-month currency swap line agreement, under which Korea will have access to U.S. dollar funds of up to $30 billion in exchange for the Korean won. The 13 other countries also opened similar arrangements with the Fed.

In February this year, the Fed agreed to extend the bilateral currency swap agreements by another six months to Oct. 30.

"This time, the Fed extends the agreements only by three months. This reflects improving dollar-funding conditions globally," said Kang Jae-taeck, deputy director-general of the BOK's foreign exchange market division. "After the three-month period, the relevant banks will discuss again whether to extend or end the regime."

The Bank of Korea has, since October, provided U.S. dollar liquidity in South Korea through competitive auction facilities to commercial banks, using funds from the swap line.

Since mid-March, however, the Bank of Korea has been reducing dollar supply to local banks amid signs of improving liquidity. The outstanding amount fell to $10 billion as of June 6, down from $16.35 billion in early March.

The 14 central banks tapped a combined $126 billion out of the bilateral swap lines with the Fed as of June 23, down from $513.8 billion at the end of 2008, according to the Bank of Korea.

-By In-Soo Nam, Dow Jones Newswires; 822-2198-2234; In-Soo.Nam@dowjones.com

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(END) Dow Jones Newswires

June 25, 2009 12:15 ET (16:15 GMT)