Multi-Axis Currency Swap Networks and Exchange Rate Stabilization: A Non-Dollar Signaling Approach to KRW/USD Management

This paper proposes and empirically evaluates a multi-axis swap network stabilization hypothesis: that a strategically expanded network of bilateral currency swap agreements with non-dollar reserve currency issuers can generate indirect downward pressure on the KRW/USD exchange rate through cross-rate equilibrium rebalancing and, more importantly, through a market signaling channel. South Korea's existing swap architecture-totaling approximately $148.2 billion across eight counterparties as of early 2025-remains structurally skewed toward crisis-contingent liquidity provision rather than ambient exchange rate management. Drawing on high-frequency event studies of swap line announcements (Bahaj and Reis, 2022; Bahaj, Reis, and Szabó, 2023), CIP deviation compression evidence (Aizenman, Ito, and Pasricha, 2022), and the political-signaling literature (Park and Lee, 2025), this paper develops a three-channel framework-direct liquidity, cross-rate arbitrage, and signaling-and provides empirical evidence from an event study of ten Korean swap-related announcements (2008-2026) and a panel regression of 72 quarterly observations (Q1 2008-Q4 2025). The preferred specification yields a negative and significant conditional association (β =-2.277, p < 0.01) between log swap network size and KRW/USD realized volatility (R² = 0.934), after controlling for interest rate differentials, VIX, oil prices, and Fed swap activation. While the high R² is driven primarily by VIX and interest rate controls, and endogeneity concerns preclude a strict causal interpretation, the results are consistent with the signaling hypothesis. The paper concludes that converting crisis-contingent arrangements to standing facilities represents an underexploited policy lever, though the magnitude of independent swap network effects requires further identification through intraday data or instrumental variable strategies.