ZURICH -- The bilateral currency swap deal with Switzerland proves that South Korea's economic fundamentals remain strong and there's trust in fiscal policy, the head of South Korea's central bank has said.

Lee Ju-yeol, governor of the Bank of Korea, made the remarks Tuesday after signing the currency swap deal with the chairman of the Swiss National Bank's governing board, Thomas Jordan.

The three-year swap agreement enables Korean won and Swiss francs to be purchased and repurchased between the two central banks up to a limit of 11.2 trillion won ($10.4 billion), or 10 billion Swiss francs.

A currency swap is a tool for defending against financial turmoil by allowing a country beset by a liquidity crunch to borrow money from others with its own currency.

"This deal was possible due to awareness that Korea's economy is strong, and its foreign exchange and financial markets are safe," Lee told reporters.

Market watchers said the agreement will add to South Korea's financial stability, as Switzerland is one of the most credible countries around the globe.

One key risk facing South Korea's economy this year is a protectionist move by the US government, Lee said.

"It is difficult to judge whether the pace of expansion of protectionist trade is faster than expected. But, there are concerns about the possibility," Lee said.

The BOK raised its key interest rate on Nov. 30 last year, marking the first rate hike in more than six years.

Central banks in advanced economies, including the US, are likely to hike their key rates at a faster pace than anticipated this year as the global economy has recovered from the 2008 financial crisis.

Lee said he remains concerned about the pace of anticipated monetary tightening by central banks in advanced economies. (Yonhap)