Swapping one country’s currency for another isn’t as easy as it might seem from an outsider’s perspective. However, China took some important steps earlier this week when it successfully traded currency with South Korea.
In an effort to boost trade settlement financing for Chinese importers of goods from South Korea, the People’s Bank of China lent 400 million Korean won (US$390,000). According to a statement on the PBOC website, this was the first use of foreign currency under currency swap agreements.
“The first use of the won funds by the PBOC has boosted cooperation under the bilateral currency swap agreement,” the PBOC explained in a statement.
As explained by a recent Shanghai Daily article, a Chinese bank borrowed the first won-denominated funds under the currency swap line between the PBOC and the Bank of Korea. Then, the PBOC granted the won-denominated loans to a Chinese company to make payments for South Korean imports.