The Bank of Korea said Wednesday that it will release its first batch of US dollar reserves in the financial market next week in accordance with a currency swap deal with the US Federal Reserve.

“Negotiations on the swap contract are still underway and we plan to start supplying US dollars next week,” BOK Deputy Gov. Ryoo Sang-dai told reporters.

The US dollars will be made available in different installments, but the exact amount has yet to be confirmed, he said. 

Earlier, the BOK and Fed signed a bilateral currency swap contract worth $60 billion on March 19 for 10 years to help ease a dollar shortage in the foreign exchange market here, as the coronavirus pandemic has led investors to scramble for the greenback. 

Dollar supply imbalance has rattled the local financial markets, with the Korean won-dollar exchange soaring to over 1,290 won, the highest level since July 2009.

Korea first struck a $30 billion currency swap deal with the US during the global financial crisis in 2008. Nearly $4 billion in US currency was supplied in the first batch under the 2008 agreement. 

The official said this time the amount of dollars in the first batch would be much greater compared to the 2008 arrangement.

A currency swap deal is a bilateral contract that involves the exchange of currencies between two nations at an agreed upon conversion rate. 

If the US dollars are channeled to foreign exchange banks under the swap deal, economic uncertainties over the coronavirus cash crunch are likely to be relieved to some degree, according to some market watchers. 

The local currency closed at 1,229.90 won against the US dollar Wednesday, down 20 won from the previous session. 

By Choi Jae-hee (cjh@heraldcorp.com)