Seoul: Foreign exchange authorities have reached an agreement with the state pension operator to extend their $65 billion currency swap deal by one year, as announced by the central bank on Monday. The finance ministry and the Bank of Korea (BOK) have secured an extension with the National Pension Service (NPS) on their foreign exchange swap arrangement, maintaining the limit at $65 billion until the end of 2026, the BOK confirmed.
According to Yonhap News Agency, the initial swap deal was set to expire at the end of this year. It was first established in September 2022 with an initial cap of $10 billion. This limit saw subsequent increases, reaching $35 billion in April 2023, $50 billion in June 2024, and finally $65 billion by December 2024.
The BOK emphasized that this agreement aims to stabilize the foreign exchange market by meeting the NPS’s demand for spot dollar purchases during volatile market periods. The central bank noted that hedging foreign assets through swap transactions would enable the NPS to mitigate exchange rate volatility risks related to its overseas investments, thereby supporting fund returns.
The extension occurs amid a significant weakening of the local currency against the U.S. dollar in recent weeks, with the exchange rate falling below the critical threshold of 1,450 won per dollar. This depreciation has prompted authorities to implement various policy measures to ensure financial stability. On Monday, the local currency was valued at 1,471.0 won against the greenback at 3:30 p.m., marking a 2.7 won increase from the previous session’s close.
Policymakers have attributed the won’s depreciation primarily to increased U.S. stock investments by local individuals and the NPS, alongside profit-taking by offshore investors following substantial gains in the domestic market. Last month, the finance ministry, the BOK, the NPS, and the health and welfare ministry, which oversees the pension fund, established a four-way consultation group to address foreign exchange issues.