The Bank of Korea (BOK) announced on Wednesday that it agreed with the US Federal Reserve to extend the currency swap deadline by six months in order to relieve market shake-ups over dollar shortages.

The central bank said that the deadline, which was set to expire on April 30, will be extended until October 30. The size of the swap facility is left intact at US$30 billion.

"This action of extending its swap agreement with the Federal Reserve should contribute to improving the foreign currency funding conditions of banks and restoring stability to the financial market in Korea," the BOK said.

The arrangement is the Federal Reserve's move on continuous global market shake-ups over dollar shortages in the wake of Lehman Brothers' bankruptcy, according to Yonhap.

The Fed also decided to extend the currency swap deadline of 12 other central banks. The Bank of Japan will decide whether to apply the extension at its next monetary policy meeting.

Thus far, the use of South Korea's swap arrangement with the US has helped alleviate market fears on declining foreign reserves in South Korea, Yonhap said.

"When necessary, the BOK will continue to offer dollar liquidity to banks through competitive auctions by tapping the swap facility," Ahn Byung-chan, head of the central bank's international bureau, said.

In a related move, South Korea in late December last year reached new currency swap deals with China and Japan to increase the size of its existing swap lines to US$30 billion.

The swap deal with China, which is still open to extension agreements, will be effective for three years, while that with Japan expires at the end of April.

"As the swap arrangement with the US is extended, the BOK expects there will be no major difficulties in extending a deadline with the Bank of Japan," Ahn said.

(Xinhua News Agency February 4, 2009)