National Pension Service-Foreign Exchange Authorities $10 Billion Currency Swap... Short-term Funding Limit Increased (Comprehensive)

Foreign Currency Short-Term Fund Limit Raised from $600 Million to $3 Billion
Advance Overseas Investment Funding Also Now Possible

[Asia Economy Reporter Kim Young-won] The National Pension Service (NPS) has decided to conduct a currency swap worth $10 billion with the foreign exchange authorities. The short-term foreign currency fund limit has been raised to $3 billion.

On the 23rd, the National Pension Fund Management Committee held its 5th meeting, where it reviewed and approved changes to the National Pension Fund management plan and amendments to the management guidelines, and decided to proceed with the foreign exchange swap agreement with the Bank of Korea.

Under this currency swap, the NPS will be able to procure foreign currency funds necessary for overseas investments through foreign exchange swap transactions with the foreign exchange authorities. The maturity per transaction will be either 6 or 12 months, which is longer than the typical maturity period of commercial banks, allowing the NPS to reduce transaction risks and costs. The new transaction period is until the end of this year, with a limit of $10 billion.

In the swap transactions, both institutions agreed not to hold early termination rights. The NPS had previously conducted currency swaps with the Bank of Korea and the Ministry of Strategy and Finance from 2005 to 2008, during which the Bank of Korea held early termination rights.

The authorities emphasized that this currency swap is a measure for the stable supply and demand of foreign currency rather than for exchange rate stabilization. Lee Seuran, Director of the Pension Policy Bureau at the Ministry of Health and Welfare, stated, "From the NPS perspective, overseas investment is inevitable, and since no bank holds as much foreign currency as the Bank of Korea, this currency operation was conducted," adding, "While it is true that it incidentally helps the market supply and demand situation, the swap operation was not conducted for that reason." She further added, "There is no design in the currency operation plan that would negatively affect fund returns."

At the meeting, a pre-procurement plan was also reported, allowing funds needed for overseas investments to be procured in advance through the foreign exchange market. Until now, pre-procurement by purchasing dollars in advance was not permitted, forcing the NPS to concentrate foreign exchange purchases at the time of overseas investments. Going forward, pre-procurement will be possible within a monthly limit of $1 billion.

Additionally, the committee resolved to raise the short-term foreign currency fund limit to $3 billion. Short-term foreign currency funds are cash-equivalent assets temporarily held to procure funds for overseas investments, and the current limit is $600 million. An NPS official explained, "While the scale of overseas investments is about $330 billion, the current limit is excessively low, causing unnecessary foreign exchange transactions. With this limit increase, unnecessary exchange costs will be reduced, and the impact on the foreign exchange market caused by large-scale overseas asset repatriation is expected to be mitigated."

Director Lee stated, "With this measure, foreign currency will be procured stably, and with short-term funds and pre-procurement resolved, the NPS will gain significant flexibility in foreign exchange management," adding, "The contract was executed in accordance with the principle of public interest, minimizing damage to the national economy, and I would like to emphasize once again that there is no loss to the NPS."

This content was produced with the assistance of AI translation services.