The central banks of Malaysia and South Korea announced the establishment of a bilateral currency swap arrangement on Sunday, in a bid to promote the use of local currencies for bilateral trade and strengthen financial cooperation between the two countries.

The arrangement allows for the exchange of local currencies between the two central banks of up to 5 trillion won or 15 billion ringgit ($4.75 billion). The effective period of the arrangement is three years, and could be extended by mutual agreement, the two central banks said in a joint statement.

"With this arrangement, firms from both countries will now have greater flexibility to use local currency for settlement of their bilateral trade and investment activities," said Malaysian central bank governor Zeti Akhtar Aziz.