President Yoon Suk-yeol speaks to U.S. Treasury Secretary Janet Yellen during her courtesy visit to the presidential office in Yongsan, Seoul, Tuesday. Yonhap

South Korea shows willingness to join price cap on Russian oil

By Nam Hyun-woo

President Yoon Suk-yeol asked U.S. Treasury Secretary Janet Yellen on Tuesday to discuss "practical ways of cooperation between the two countries to stabilize the currency market." The comments are viewed as an expression of South Korea's hopes of resuming a currency swap deal between the two countries.

According to the presidential office, Yoon and Yellen had a closed-door meeting at the South Korean presidential office in Yongsan District, Seoul, during the U.S. official's two-day visit here. It was the first visit to Seoul by a U.S. Treasury secretary since June 2016.

The office said Yoon and Yellen, who served as Federal Reserve chair from 2014 and 2018, discussed an agreement made during the South Korea-U.S. Summit in May on close cooperation in the foreign exchange market.

An official at the presidential office said Yoon "did not specify a currency swap deal" during the meeting. But the president's remarks are interpreted as an expression of his hope to resume discussions over a currency swap deal between the two countries.

There have been growing calls in South Korea for a currency swap deal with the U.S. due to the depreciation of the won against the dollar. The South Korean government and the ruling People Power Party agreed on July 17 that the country needs such a deal, saying that a "currency swap will play a certain role in preventing further drops in the won's value."

The currency swap deal enables Seoul to borrow dollars in exchange for the Korean currency at a pre-agreed rate, thus helping boost the won's value. The previous currency swap agreement between South Korea and the U.S. expired in December of 2021.

South Korea's Deputy Prime Minister Choo Kyung-ho reportedly asked the U.S. during his meeting with Yellen to begin talks to resume the currency swap deal. The two agreed to strengthen cooperation on preemptive measures to ensure currency market stability.

"The two sides agreed they 'have the ability to implement various cooperative measures, such as liquidity facilities, if needed,'" the ministry said in a statement.

Along with talks on the foreign exchange market, Yoon and Yellen discussed ways to strengthen cooperation between South Korea and the U.S. in bolstering supply chain resilience.

"With various and comprehensive crises threatening the entire world, I hope the comprehensive strategic alliance between South Korea and the U.S. will become stronger so it can develop into an alliance of politics, the military, national security, industrial technology and even economy and finance," Yoon said during the meeting. "I am convinced that Secretary Yellen's visit this time will be an opportunity to expand the comprehensive alliance between South Korea and the U.S."

Contrary to expectations, Yoon and Yellen did not discuss the adoption of additional sanctions against North Korea, according to the presidential office.

The U.S. asked South Korea to take part in placing a price cap on Russian oil and Choo expressed his government's willingness to do so, saying the cap should be designed to effectively contribute to stabilizing global oil prices and easing inflation.

Yellen's visit is largely seen as an extension of the Biden administration's push for "friend-shoring" or the practice of bolstering U.S. trade ties with trusted partners, while avoiding partnerships with countries unfairly using their market advantages, which Yellen said include China.

During her visit to LG Chem's R&D facility in western Seoul, she stressed the importance of friend-shoring and attracting more South Korean corporate investments into the U.S.

"To make our supply chains more resilient, we need to maintain strong economic ties with critical allies like [South] Korea, while lessening the risks associated with the overconcentration of key supplies in unreliable countries," Yellen said during her speech at LG.

"We cannot allow countries like China to use their market position in key raw materials, technologies, or products to disrupt our economy or exercise unwanted geopolitical leverage."

LG Chem is the parent company of LG Energy Solution, which is one of the world's largest electric vehicle battery suppliers. In March, LG Energy Solution announced a plan to invest 1.7 trillion won ($1.29 billion) to build a new battery plant in Queen Creek, Arizona.

The battery supplier, however, recently said it is "reviewing the timing and the size" of the investment plan due to pressures from a weakening won and inflation in the U.S.

Against that backdrop, Yellen's visit to LG appears to have been aimed at reassuring the company's investment commitment.