The central banks of China and the Republic of Korea Monday signed a US$2 billion currency swap deal which both sides hailed as a move to enhance bilateral cooperation and regional financial stability.

Dai Xianglong, governor of the People's Bank of China and Park Seung, governor of the Bank of Korea, signed the contract.

"The deal is especially meaningful at the moment as we are celebrating the 10th anniversary of the establishment of diplomatic relations between our two countries,'' Dai said.

Bilateral economic cooperation has been developing steadily, Dai said. China is now South Korea's third largest trade partner and South Korea is China's fourth largest. Trade volumes between the two stood at US$36 billion in 2001.

The pact, signed Monday, is forged under the umbrella of the Chiang Mai Initiative (CMI), which aims to build closer monetary ties by creating a network of central bank currency swaps among the Association of South East Asian Nations plus China, Japan and South Korea (ASEAN+3). The CMI was proposed and agreed during a meeting of the region's finance ministers in Chiang Mai, Thailand, in 2000.

The idea of the swap is to financially help members of the group when the value of a member's currency fells under selling pressure, something seen during the 1997-98 financial crisis in the region.

"The financial crisis made us realize that Asian countries must strengthen their financial cooperation,'' Dai said.

South Korea was one of the victims during the crisis.

"Had the CMI network been in place at that time, the impact of the crisis on us would not have been that big,'' Park said.

China had signed two currency swap contracts before it struck the deal with South Korea.

It signed a US$2 billion with Thailand last December and a US$3 billion scheme with Japan in March.

Economic prospects of both China and South Korea are rosy at the moment. China's economic growth is anticipated to be above 7 percent this year. South Korea has staged the strongest recovery among the economies affected by the financial crisis and its growth is expected to accelerate.

But both China and South Korea said they need to prepare for the unexpected.

"Nobody know what's going to happen. So what we are doing now is actually a boost for confidence,'' said Jin Liqun, China's vice-finance minister, who was also at the signing ceremony.

(China Daily June 25, 2002)