National Pension Service and Bank of Korea Agree on $35 Billion Foreign Exchange Swap Limit

The National Pension Service announced on the 13th that it has agreed with the Bank of Korea to increase the foreign exchange swap transaction limit within a $35 billion cap by the end of this year to secure hedging instruments following the increase in the currency hedge ratio. A swap is a contract that uses the form of currency exchange to facilitate short-term financing.

As the $10 billion foreign exchange swap transaction limit agreement with the Bank of Korea, concluded in October last year, expires at the end of 2022, a new swap transaction limit has been set.

The National Pension Service plans to procure dollars through the Bank of Korea within the $35 billion limit as needed.

The maturity per transaction is set at 6 or 12 months, the same as last year, and neither party holds the right to early termination this time as well.

The National Pension Service’s addition of the foreign exchange swap transaction limit with the Bank of Korea aims to secure hedging instruments following the increase in the currency hedge ratio.

In December last year, the National Pension Fund Management Committee temporarily raised the currency hedge ratio from 0% to up to 10% depending on market conditions to prepare for foreign exchange losses following the stabilization after a sharp rise in exchange rates.

Kim Taehyun, the Director, said, "With the additional foreign exchange swap transaction limit, the National Pension Service is expected to mitigate exchange rate fluctuation risks associated with overseas investments and contribute to the efficiency of foreign currency fund management."

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