ISTANBUL

The Turkish and South Korean central banks have signed a bilateral swap agreement allowing for the exchanging of local currencies of up to 2.3 trillion Korean won or 17.5 billion Turkish liras (around $2 billion), said an official announcement.

"The effective period is three years from today, and could be extended by mutual agreement between the two sides," the Bank of Korea said on Thursday.

The agreement was signed by Turkish Central Bank Governor Sahap Kavcioglu and his counterpart Juyeol Lee.

The swap agreement aims to boost bilateral trade through a swap-financed trade settlement facility and promote financial cooperation for the economic development of both sides, the bank stressed.

Enver Erkan, chief economist at Istanbul-based private investment firm Tera Yatirim, said a new swap agreement with an Asian bank had been expected following Turkey’s similar deals with the Chinese and Qatari central banks.

He underlined that one function of the new agreement is developing trade in local currencies between the two sides, adding: "This can contribute to the overall trade volume."

Citing the current Turkish-South Korean trade volume of $7 billion annually, he said Turkey has a trade deficit of $4.4 billion with South Korea.

"In trade in local currencies, an equal balance of trade is desirable, so Turkey should boost its exports and potential in terms of the trade volume that can increase," Erkan said.