South Korean Pension Fund Will Buy US Dollars to Boost Sinking Won

The gambit is designed to help the nation’s currency in a deal engineered by its central bank.

To bolster the sagging South Korean won, the nation’s central bank, the Bank of Korea, has struck an agreement with the National Pension Service of Korea to acquire up to $35 billion in U.S. dollars outside foreign exchange markets, Reuters reported.

The South Korean currency has lost 8% of its value over the past two months, and the dollar infusion into its monetary system is aimed at bolstering the won. The greenback, while slipping itself, still is regarded as the world’s strongest currency.

After the announcement, the won bumped up slightly in relation to the dollar. By making the currency exchange outside the markets, the idea is evidently to avoid fluctuations that could weaken the stratagem’s impact.

South Korea’s currency has suffered from a trade deficit largely linked to shrinking sales of its sizable semiconductor industry. Tensions with North Korea and volatile capital markets globally also have been headwinds. These factors have prompted many South Koreans to exchange won to buy dollar-denominated assets, viewed as refuges in unsettled times.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

South Korea, the world’s 10th  largest economy, is heavily dependent upon exports. National officials hope that China’s re-opening after its pandemic lockdown will reinvigorate its imports from South Korea.

The Bank of Korea had a previous, smaller ($10 billion) arrangement with the huge pension fund, which expired at the end of 2022.

The NPS is the world’s eighth largest pension fund, with $680 billion in assets as of year-end 2022. South Koreans can participate in it to supplement their income from the nation’s Social Security-like retirement payments. Aside from securities, the program also invests in private equity, venture capital and  real estate.

The fund suffered an 8.2% investment loss last year amid plunging markets worldwide. Some 28% of its portfolio is in foreign stocks and 8% of its bond holdings are from overseas.

Related Stories:

Korean National Pension Fund Loses More Than 8% in 2022

Global Currency Market Commentary

Drooping Dollar May Face Global Reckoning, but Is There a Viable Replacement?

Tags: , , , , , ,