marctomarket.com / by Marc Chandler / Oct 11, 2017
China has declined to renew the $56 currency swap line with South Korea. The swap line has been in place for eight years. Initially, it was launched at $26 bln in 2009 and expanded in 2011. It has been extended twice since then.
The swap line from China was South Korea’s largest swap line, accounting for almost half of all of its official currency swaps. Just two days ago, news wires were reporting that officials were optimistic that the swap line would be renewed.
However, financial statecraft is an integral part of China’s foreign policy. It often tries to use its financial and economic strength to reward its friends and punish its enemies. It offered assistance to countries that dropped recognition of Taiwan. It canceled the currency swap line with Japan in 2015 when Japan nationalized a couple of small islands for which it also has a claim.
Refusing to renew the currency swap with South Korea appears to be largely a protest over the deployment of the missile defense system. Ostensibly the defense system is meant to offer protection from North Korea, but Chinese officials are well aware that the missile defense can be used against it as well. Also, there appears to be some suspicion that the advanced radar that is needed for the missile defense could also be used for spying purposes.
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