South Korea and China signed a deal to extend their bilateral currency swap agreement and expand the size, the Bank of Korea (BOK) said Thursday, a move aimed at helping ease a potential liquidity crunch amid the pandemic.

The BOK and People's Bank of China clinched a won-yuan currency swap deal worth $26 billion in December 2008 in the midst of the global financial crisis. They have extended it by three years three times so far and enlarged the size to some 64 trillion won ($56.5 billion) in 2011.

Under the new deal, South Korea and China extended the swap deal by another five years and increased the size to 70 trillion won, according to the BOK.

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

The central bank said the extension of the currency swap deal is expected to help boost bilateral trade between the two nations and stabilize financial markets in the region.

"This action will serve as a foundation for further enhancing the financial and monetary cooperation between two central banks," the BOK said in an English statement.

In July, South Korea and the United States agreed to extend a $60 billion bilateral currency swap agreement by six months in a bid to ease market uncertainties amid the COVID-19 pandemic.

South Korea maintains currency swap deals totaling more than $196.2 billion with eight countries, including Canada and Switzerland. It also holds a regional financial safety net with 10 ASEAN countries and China and Japan under the Chiang Mai Initiative Multilateralization (CMIM), a $240 billion pool that can be tapped in a time of financial crisis.

South Korea's $10 billion currency swap deal with Japan expired in 2015, but talks to revive the deal have been suspended since last year amid a diplomatic feud over history issues. (Yonhap)