NPS Raises Strategic Currency Hedging Ratio to 15%... Steps In as Exchange Rate Buffer

The National Pension Service (NPS) has raised its strategic currency hedging ratio for overseas investment assets to 15%, an increase of 5 percentage points. The NPS stated that this move is intended to act as a buffer at a time when geopolitical risks are causing significant fluctuations in oil prices and the KRW-USD exchange rate.

On April 14, the Fund Management Committee of the NPS held its third meeting of 2026 at the Government Complex Seoul, where it deliberated and approved this measure. As a result, the NPS can now apply up to 20% of its overseas investment assets to currency hedging, combining the increased strategic hedging ratio of 15% with an additional 5% tactical hedging allowance.

The NPS will use the 15% hedging ratio as a baseline for overseas investments and will implement it flexibly, taking market conditions into account. The NPS will also continue to collaborate with the foreign exchange authorities, including utilizing swaps as part of the hedging execution process.

Given the recent surge in exchange rate volatility, the aim is to prevent potential currency losses stemming from future changes in the global landscape, while also reducing volatility in the NPS portfolio and securing a stable supply of foreign currency for overseas investments. Recently, the KRW-USD exchange rate soared to the 1,530-won range-the highest level since the financial crisis-driven by Middle East-related geopolitical risks that began with the conflict between the United States and Iran. International oil prices have exceeded 100 dollars per barrel, fueling concerns about stagflation, where economic recession and inflation occur simultaneously.

This increase in the hedging ratio is expected to inject tens of trillions of won worth of dollars into the market. As of the end of January, the total amount of the NPS’s overseas assets under management was approximately 827 trillion won. Even just the additional 5% represents more than 41 trillion won. For currency hedging, the NPS buys dollars on the spot market and simultaneously sells dollar forward contracts to banks. Banks, in turn, sell dollars on the spot market to offset the forward contracts they purchase for their own hedging activities, resulting in a net increase in dollar supply in the market.

The Fund Management Committee also decided to pursue the issuance of foreign currency bonds as a way to diversify its foreign currency funding methods. Instead of selling won in the market to procure dollars, the NPS plans to raise foreign currency directly by issuing bonds. However, this will require an amendment to the National Pension Service Act.

Minister of Health and Welfare Jeong Eun-kyeong stated, “Since the NPS’s reserves serve as responsible funds to guarantee income in retirement, the profitability and stability of the fund must be the top priorities. In addition, as the fund grows larger due to pension reform and its impact on the national economy increases, we also need to consider the mutual effects between NPS fund management, the macroeconomy, and the foreign exchange and financial markets.”

Yonhap News Agency

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