China and South Korea have signed a new five-year bilateral currency swap agreement worth 70 trillion won ($49.24 billion / 400 billion yuan) as they seek to strengthen their economic relationship.
The agreement was reached during a high-level meeting between the Bank of Korea and the People’s Bank of China in Seoul. South Korea’s presidential office stated that it would now exchange its national currency, the won, and the Chinese yuan within the existing limits.
The swap line was developed to stabilize the financial market, trade transactions, and ensure liquidity during times of crisis. It replaces a previous agreement that expired in October 2025. Seoul authorities believe the strategic swap line would help reduce the usage of the US dollar in Asian deals.
The move aligns with a broader trend across Asia, where countries are seeking to reduce their reliance on the US dollar in trade and financial transactions. Similar initiatives have been observed between China and other BRICS members, as well as between ASEAN economies, in their efforts to strengthen regional payment frameworks.
Such patterns are emerging due to growing confidence in their national currencies and concerns that external monetary turbulence may harm their national economies.
Analysts say this is a vital agreement, as all countries globally face multiple global economic challenges, including differences in energy costs, declining growth, and currency fluctuations. Through more substantial yuan-won connections, Beijing and Seoul wish to integrate their economies more effectively and foster assurance between their central monetary authorities.
Leaders pledge broader cooperation
The currency swap was one of the six memorandums of understanding signed during Chinese President Xi Jinping’s state visit to South Korea, his first since taking office 11 years ago.
State President Lee Jae-myung welcomed Xi in Seoul on the sidelines of the Asia-Pacific Economic Cooperation summit, to expand economic cooperation beyond their four-day-long meeting, which also sought to bolster mutual trust.
These agreements encompass economic and trade, services and digital economy, agriculture and related sectors, as well as amendments to quarantine policies concerning Korean produce. Additionally, they will accelerate their collaboration in combating online and telecom fraud and prioritize collaboration within the silver economy.
President Xi hailed the collaboration as marking a new phase of mutual trust and shared development. At the same time, President Lee added that a closer partnership would help build a stronger foundation for peace and prosperity in Northeast Asia.
The two leaders also discussed ways to revitalize the Korea-China Free Trade Agreement, which has performed poorly compared to other trade agreements, while expanding their joint investments in clean energy, green technology, and semiconductor production.
For South Korea, the currency swap also adds stability to its foreign exchange reserves, which have been shaky due to global monetary contraction.
The Bank of Korea explained that the agreement would eliminate the possibility of temporary liquidity shortages and promote financial cooperation in the region. Economists agree that this agreement broadens Asia’s financial safety net and creates conditions for similar trade agreements within the region. In such a context, last year’s agreement by Seoul to renew the $10 billion won-dollar swap line with Tokyo is a positive sign.
Region faces shifting strategic dynamics
The revitalization of economic partnership with China comes at a time when regional geopolitics is shifting in a new direction. This has left Seoul straddling between age-old ties with China, its largest trading partner, and a deepening strategic partnership with Washington and Tokyo.
Park Sung-hoon, an economist at Korea University, said the swap was a genuine response from the South to maintain multilateral financial routes. The analyst suggested that it served as a “plan B” in case of a deterioration in relations with China or the United States.
He said the agreement demonstrated economic independence and strategic thinking, keeping in mind that the dollar “does not have Korea in chains” anymore.
For China, meanwhile, flawed regional economic performance and the need to consolidate its regional role encourage pragmatic diplomacy. The revival of Chinese exchange lines, for example, is one component of enhanced integration into Asian economies amid slowing exports and persistent pressure on the property sector.
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Source: https://www.cryptopolitan.com/china-and-skorea-expand-economic-cooperation/
