Korea requests ‘unlimited’ currency swap with US as pressure mounts over investment fund

Kim Jung-kwan, South Korea’s minister of trade, energy and industry, arrives in Korea after returning from the US for talks on the two sides’ stalled tariff negotiations on Sept. 14, 2025. (Yonhap)

In response to Washington’s demands for it to set up a US$350 billion fund for investment in the US, the South Korean government has reportedly requested the establishment of an “unlimited” currency swap arrangement between the two sides.

With the US demanding a higher proportion of direct investment during the two sides’ negotiations of the specific terms of its tariff deal, South Korea requested the currency swap arrangement as a minimal safeguard to defend against foreign exchange market shocks. The wide differences between South Korea and the US on the methods for forming and distributing the fund had some observers predicting the negotiations could drag out into the long term.

According to accounts Sunday from the presidential office and administration, the South Korean government recently raised the need for an unlimited currency swap arrangement in its tariff negotiations with the US.

“We’ve been discussing various ideas for minimizing impacts on the foreign exchange market, including a currency swap arrangement,” a government official explained.

A currency swap is an agreement in which a country entrusts another with its own currency and borrows the other country’s currency at a previously arranged exchange rate in times of emergency.

A senior official with the presidential office explained that “various things” are being discussed with the US.

“As a reference, you can look at the sort of level that Kim Yong-beom spoke about at the Korea Broadcasting Journalists Club,” they suggested, referring to the president’s chief secretary for policy. 

During an invitational roundtable hosted by the press association on Tuesday, Kim commented that Japan is a “key currency nation with three times South Korea’s level of foreign exchange reserves.”

“Our currency swap issue [with the US] hasn’t been resolved. Japan has an unlimited currency swap arrangement with the US,” he stressed at the time.

Seoul’s request stems from concerns about the potential for foreign exchange market instability during the establishment of South Korea’s US investment fund.

The US$350 billion that South Korea has agreed to invest in the US amounts to 83% of its current foreign reserves of US$420 billion. This creates a much larger burden on the state than the US$550 billion investment package that Japan agreed on with the US — an amount that represents 41% of Japan’s foreign reserves.

Initially, the South Korean government had hoped to invest through guarantees and loans while minimizing the burden of direct investment in the US. But the US has recently been demanding increased direct investment along the same lines as its agreement with Japan.

Analysts have suggested the idea of an unlimited current swap is realistically unfeasible and serves as part of South Korea’s negotiation strategy. Such an arrangement would have the US assume unlimited responsibility for dollar liquidity risks in another country’s foreign exchange market.

To ensure the stability of its financial systems, the US currently has unlimited currency swap arrangements with five countries that possess world currencies, including Japan and the UK.

In pressuring South Korea, the US has pointed to the example of Japan, which it previously reached a deal with. Japan agreed to a number of disadvantageous terms, including letting the US take the lead in selecting investment targets and sharing half the profits before its investment is recouped.

Minister of Trade, Industry and Energy Kim Jung-kwan previously visited the US for follow-up discussions on the two sides’ tariff negotiations but returned to South Korea on Sunday with nothing in the way of visible results.

In addition to increased direct investment, the US is also demanding a profit distribution framework in which the US accepts 10% and South Korea 90% before the investment has been recouped, but where the proportions are reversed once the principal has been recouped.

“The precedent set by Japan has drastically reduced the room for South Korea to negotiate, as its foreign exchange reserves are far less than Japan’s,” observed Chang Sang-sik, the head of the Korea International Trade Association’s Institute for International Trade. 

“If this situation continues, a blow to export competitiveness appears unavoidable,” he predicted.

By Park Su-ji, staff reporter; Shin Hyeong-cheol, staff reporter; Lee Jae-ho, staff reporter

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