South Korea's foreign exchange authorities have agreed with the National Pension Service to extend their $65 billion currency swap deal by one year. The arrangement, set to run through the end of 2026, aims to stabilize the forex market. This move comes amid recent weakening of the won against the U.S. dollar.
SEOUL -- Foreign exchange authorities have agreed with the state pension operator to extend their US$65 billion currency swap deal by one year through the end of 2026, the central bank said Monday.
The finance ministry and the Bank of Korea (BOK) reached the agreement with the National Pension Service (NPS). The deal was due to expire at the end of this year.
The swap arrangement was first established in September 2022 with an initial limit of $10 billion. The limit has since been raised to $35 billion in April 2023, $50 billion in June 2024, and $65 billion in December 2024.
"The agreement is expected to contribute to stabilizing the foreign exchange market by absorbing the NPS' demand for spot dollar purchases during periods of market volatility," the BOK said in a release.
Hedging foreign assets through swap transactions "would help the NPS mitigate exchange rate volatility risks associated with its overseas investments and support fund returns," the BOK added.
The extension comes as the local currency has weakened markedly against the U.S. dollar, trading below the 1,450 won level. On Monday, the won was quoted at 1,471.0 against the dollar at 3:30 p.m., up 2.7 won from the previous session.
Policymakers attributed the won's decline to increased U.S. stock investments by local individuals and the NPS, as well as profit-taking by offshore investors.
Last month, the finance ministry, BOK, NPS, and the health and welfare ministry formed a four-way consultation body on foreign exchange issues to enhance financial stability.
