The won/dollar exchange rate is displayed on the electronic display board of Hana Bank in Jung-gu, Seoul on the 23rd. Reporter Moon Jae-won
A currency swap transaction that allows the National Pension Service to raise up to $10 billion in dollars through the Bank of Korea rather than the foreign exchange market is being promoted. This is to reduce the impact of the National Pension Service’s overseas investment on the market as the exchange rate of the won against the dollar recently surged.
The National Pension Fund Management Committee (Fund Committee) held the 5th meeting at the President Hotel in Jung-gu, Seoul on the 23rd to discuss items such as ‘National Pension-Bank of Korea foreign exchange swap agreement’. We have decided to pursue a foreign exchange swap transaction in which we procure dollars through the Bank of Korea.”
The background of this transaction is that the National Pension, which is increasing overseas investment every year, and the Bank of Korea, which seeks to stabilize the foreign exchange market, met the demands. The Fund said, “The maturity of each case is set at 6 or 12 months, which is longer than the maturity of foreign exchange swaps at general commercial banks, so the National Pension Service can reduce transaction risks and costs. We expect to be able to secure funds for overseas investment.”
He added, “If the dollar liquidity is insufficient as in recent times, it will be possible to procure foreign exchange without going through the market, which will contribute to stabilization of supply and demand in the foreign exchange market.” On the 22nd, the won-dollar exchange rate exceeded 1,400 won for the first time in 13 years and 6 months. The overseas investment of the National Pension Service is approximately $30 billion annually, with an average of $100 million per day. Currently, the total overseas investment is 330 billion dollars. When a foreign exchange swap is concluded with the Bank of Korea, the National Pension Service can use dollars in the Bank of Korea’s foreign exchange reserves when making overseas investments in the future without going through the market. The National Pension Service and the Bank of Korea signed a foreign exchange swap between 2005 and 2008.
The Fund also discussed ways to raise funds for overseas investment in advance through the foreign exchange market. This is to solve the problem of having to buy foreign exchange at a high price when buying foreign stocks because the exchange rate tends to be high when the overseas stock price is low. From now on, foreign exchange can be raised in advance within $1 billion per month. This is treated separately from foreign exchange swap transactions with the Bank of Korea. In addition, in order to reduce the number of foreign exchange transactions, the limit of short-term foreign currency funds (average daily balance for each quarter) will be raised from $600 million to $3 billion.
Acting Chairman Lee Tae-soo (Chairman of the Korea Institute for Health and Social Affairs) at the meeting said, “This year, the US Federal Reserve’s monetary tightening stance has strengthened and the preference for safe-haven assets has intensified, leading to a strengthening of the global dollar, both internally and externally in financial markets. “In the first half of this year, the global stock and bond markets showed a weakness, and major pension funds at home and abroad performed poorly,” he said.