The foreign exchange authorities and the National Pension Service announced on the 19th that they have decided to extend the foreign exchange swap transaction until the end of next year and increase the limit from $50 billion to $65 billion.
The foreign exchange swap is a contract to finance short-term funds using the form of a currency exchange. The foreign exchange authorities and the National Pension Service had previously adjusted the foreign exchange swap transaction limit from $10 billion to $35 billion in April, to $50 billion in June.
The foreign exchange authorities expect that the foreign exchange swap transaction can contribute to stabilizing the foreign exchange market by absorbing the demand for spot exchange purchases by the National Pension Service in times of foreign exchange market instability.
The National Pension Service also sees that the foreign exchange swap transaction can contribute to the fund's revenue. This is because foreign exchange swaps can mitigate the exchange rate fluctuation risk associated with foreign investments by hedging overseas assets when the won-dollar exchange rate surges.
An official from the foreign exchange authorities explained, "During the swap transaction period, foreign reserves decrease by the transaction amount, but at maturity, the funds are fully restored, so the decrease in foreign reserves will be temporary."