South Korea's $20B US Investment Cap: Why It's Better Than Currency Swap

Koo made the remarks during a parliamentary audit, one day after South Korea and the US finalised their tariff agreement, which includes a $200 billion cash investment in the US with annual investments capped at $20 billion, as part of a broader $350 billion investment pledge, reports Yonhap news agency.

The remaining $150 billion will be allocated to bilateral shipbuilding cooperation projects.

"By setting an annual investment ceiling, we can flexibly adjust the payment amount if difficulties arise in the foreign exchange market, without incurring additional costs," Koo said, noting that a currency swap with the U.S. would carry an interest rate of around 4 per cent.

"We judged this approach to be far more favorable to our national interest," he added.

Earlier, the Seoul government proposed a foreign exchange swap line with the US, with President Lee Jae Myung warning that the Korean economy could face a crisis comparable to the 1997 financial meltdown if his government accepts U.S. demands for investment without safeguards.

Kim Yong-beom, the presidential chief of staff for policy, told a press briefing Wednesday that the two sides developed a mutual understanding of South Korea's concerns about potential foreign exchange market disruptions during the trade negotiations and discussions shifted toward setting annual investment caps, which reduced the need for a currency swap arrangement.

Meanwhile, Seoul stocks shed earlier gains and closed almost flat Thursday as the outcome of a highly anticipated US-China summit was unable to ease trade uncertainties. The local currency rose against the greenback.

The benchmark Korea Composite Stock Price Index (KOSPI) gained 5.74 points, or 0.14 per cent, to close at 4,086.89.

- IANS