Foreign Exchange Authorities Strengthen Exchange Rate Defense... Increase in National Pension Fund and Foreign Exchange Swap

Foreign Exchange Authorities and National Pension Service Increase Foreign Exchange Swap Transaction Amount to 65 Billion Dollars

As the U.S. Federal Reserve (Fed) hinted at slowing the pace of interest rate cuts, the New York stock market plunged sharply, and the domestic stock market also opened with a significant decline. The KOSPI started the session down 57.88 points (2.33%) at 2426.55, and the KOSDAQ also opened more than 15 points lower. Various indices are displayed in the dealing room at the Hana Bank headquarters in Euljiro, Seoul. Photo by Heo Young-han

The Bank of Korea and the Ministry of Economy and Finance, along with other foreign exchange authorities, announced that they will increase the scale of foreign exchange swap (FX Swap) transactions with the National Pension Service to mitigate the soaring volatility in the foreign exchange market.

On the 19th, the foreign exchange authorities announced that the FX swap transactions with the National Pension Service will be extended until the end of next year, and the limit will be increased from the existing $50 billion to $65 billion.

The limit on FX swap transactions between the foreign exchange authorities and the National Pension Service was increased from $10 billion in September 2022 to $35 billion in April last year, then to $50 billion in June last year, and has now been further increased.

The foreign exchange authorities expect that FX swap transactions can absorb the National Pension Service’s demand for spot foreign currency purchases during times of foreign exchange market instability, thereby contributing to market stabilization.

An official from the authorities explained, "Although foreign exchange reserves decrease by the amount of the transaction during the swap period, the funds are fully returned at maturity, so the reduction in foreign exchange reserves is temporary."

The National Pension Service also stated that foreign exchange hedging through FX swaps during sharp exchange rate fluctuations will help mitigate the exchange rate risk associated with overseas investments and benefit the fund’s returns.