The South Korean government’s hope to secure emergency backup foreign exchange funds amid foreign exchange volatility has hit a snag as diplomatic strife with neighboring countries upset its attempt to renew currency swap deals with neighboring countries.

The contract to exchange bilateral currencies of up to $56 billion with China expires in October but prospects to extend it remains bleak, given the standoff with Beijing over the deployment of Terminal High Altitude Area Defense (THAAD), according to financial authorities on Monday.

A currency swap is an agreement between two countries that enables them to exchange their currencies at a specific rate in times of crisis. The two countries agree to use the deal not just as a means of trade settlement but also stabilizing financial market.

Seoul officials aim to take up with the issue with Beijing counterparts at the upcoming meeting of G20 finance ministers and central bank governors to be held in Germany on March 22, but they cannot expect favorable response from the blunt and merciless way Beijing has been punishing Korean enterprises after a land swap with a Lotte Group location for the missile battery made the plan irreversible.

If Korea loses the currency swap with China, the balance on foreign exchange backup through swap cap could halve from the current level.

Currency swap deals have become a casualty case from protracted leadership vacuum and dysfunctional government after the scandal-ridden president was impeached in December.

Japan walked out of talks to extend the $10 billion bilateral currency deal with Korea in January despite earlier agreement on renewal in protest to the installation of a statue symbolizing wartime victims of sexual slavery by a civilian group nearby the Japanese consulate in Busan, Korea.

Washington also has been lukewarm over renewing a contract that ended in 2010 as it sees no need for a swap agreement with the Korean currency.

By Kim Gyu-sik and Lee Seung-yoon

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