NewKerala.com

South Korea Extends $65 Billion Currency Swap Deal Amid Won Volatility

South Korea's financial authorities have decided to extend a major currency swap agreement with the national pension fund. The $65 billion deal is now set to run through the end of 2026, providing a crucial buffer against market swings. This move comes as the South Korean won faces significant pressure, recently trading near 1,470 against the US dollar. The arrangement is designed to help stabilize the currency and protect the pension fund's overseas investments from exchange rate risks.

Key Points: South Korea Extends $65B FX Swap Deal with NPS to 2026

  • The $65 billion deal extension aims to stabilize the volatile foreign exchange market
  • The swap helps the NPS hedge risks from its massive overseas investments
  • The won has weakened recently, falling below 1,450 per dollar
  • A new four-way consultation body was formed last month on FX issues
2 min read

FX authorities, NPS agree to extend $65 billion currency swap deal in S. Korea

South Korea's central bank and finance ministry extend a $65 billion currency swap with the National Pension Service to stabilize the foreign exchange market through 2026.

"The agreement is expected to contribute to stabilizing the foreign exchange market by absorbing the NPS's demand for spot dollar purchases during periods of market volatility. - Bank of Korea"

Seoul, Dec 15

Foreign exchange authorities have agreed with the state pension operator to extend their $65 billion currency swap deal by one year, the central bank here said on Monday.

The finance ministry and the Bank of Korea (BOK) have agreed with the National Pension Service (NPS) to extend their foreign exchange swap arrangement, with a limit of $65 billion, through the end of 2026, according to the BOK.

The deal had been due to expire at the end of this year, reports Yonhap news agency.

The swap deal was first established in September 2022 with an initial limit of $10 billion. Since then, the limit has been increased to $35 billion in April 2023, $50 billion in June 2024 and further to $65 billion in December 2024.

"The agreement is expected to contribute to stabilizing the foreign exchange market by absorbing the NPS' demand for spot dollar purchases during periods of market volatility," the BOK said in a release.

Hedging foreign assets through swap transactions "would help the NPS mitigate exchange rate volatility risks associated with its overseas investments and support fund returns," the BOK added.

The extension comes as the local currency has weakened markedly against the U.S. dollar in recent weeks, hovering below the closely watched level of 1,450 won per dollar, prompting authorities to deploy various policy tools to safeguard financial stability.

On Monday, the local currency was quoted at 1,471.0 won against the greenback at 3:30 p.m., up 2.7 won from the previous session's close.

Policymakers have said the won's decline was driven largely by increased U.S. stock investments by local individuals and the NPS, as well as profit-taking by offshore investors following strong gains in the domestic market.

Last month, the finance ministry, the BOK, the NPS, and the health and welfare ministry overseeing the pension fund formed a four-way consultation body on foreign exchange issues.

- IANS

Share this article:

Reader Comments

P
Priya S
$65 billion is a massive amount! This shows how interconnected global pension funds are with currency markets. The NPS is a huge player. Makes me think about the scale of our own pension funds' foreign investments and the risks they manage. 📈
R
Rohit P
The won falling to 1,471 per dollar... reminds me of when the rupee touches 84. It's a constant battle for emerging economies. Good on them for having a structured mechanism with their central bank and pension service. Coordination is key.
S
Sarah B
While this is a technically sound move for financial stability, one has to ask if constantly increasing the swap limit from $10B to $65B in just over two years is sustainable. It feels like treating a symptom. The focus should also be on strengthening the underlying economy to reduce such heavy reliance on these instruments.
V
Vikram M
The four-way consultation body they formed last month is a good idea. Different government and financial entities need to be on the same page. Sometimes in India, different ministries and regulators seem to work in silos. We could learn from this collaborative approach.
K
Karthik V
Ultimately, it's about protecting the returns for pensioners. If the NPS loses money on forex swings, it's the common people who suffer. This kind of risk mitigation is crucial for any country with a large pension fund investing abroad. Hope our fund managers are paying attention.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Leave a Comment

Minimum 50 characters 0/50