The Ministry of Economy and Finance, the Bank of Korea, the National Pension Service, and the Ministry of Health and Welfare are set to hold their first closed-door meeting on the 24th to discuss measures to stabilize the exchange rate. Foreign exchange authorities are said to plan to meet frequently from this kick-off meeting to continue related consultations.
Earlier, Koo Yun-cheol, Deputy Prime Minister for the economy and Minister of the Ministry of Economy and Finance, said on the 14th, "We are concerned about the current rise in the exchange rate and will soon prepare measures to stabilize it." Even so, the won-dollar exchange rate rose for five straight days, nearing 1,480 won.
The government believes that converting won into dollars as the National Pension Service makes large-scale overseas investments is one of the factors pushing the exchange rate higher. As of the end of September, 58.63% (about 798 trillion won) of the National Pension Service's total asset is overseas asset.
In response, the government is reportedly reviewing measures such as asking the National Pension Service to adopt strategic currency hedging (hedge) for risk avoidance. Strategic currency hedging is a method in which, if the exchange rate rises above a preset threshold, 10% of dollar-denominated overseas asset held is sold. Increasing the supply of dollars in the market could be expected to lower the exchange rate.
Attention is also on whether the Bank of Korea and the National Pension Service will discuss extending their foreign-exchange swap contract. The National Pension Service needs to buy dollars in the market for overseas investments, but if it trades directly with the Bank of Korea, which holds foreign reserves, dollar demand in the foreign-exchange market declines. The Bank of Korea and the National Pension Service currently have a foreign-exchange swap contract with a $65 billion limit. The contract runs through the end of this year.
Some warn that if the National Pension Service uses currency hedging as a tool to stabilize the exchange rate or lowers its share of overseas investments, returns on people's retirement asset could fall. The foreign-exchange swap contract is also cited as a burden, as the U.S. Treasury reassigned Korea to the monitoring list for currency practices and raised issues with it.
Meanwhile, the Ministry of Economy and Finance (MOEF) said in the afternoon, "A four-party consultative body has been formed with the Ministry of Health and Welfare, the Bank of Korea (BOK), and the National Pension Service to examine the impact on the foreign-exchange market of the National Pension Service's expansion of overseas investments, and the first meeting has begun." It added, "We plan to discuss ways to harmoniously achieve both the National Pension Service's revenue and stability in the foreign-exchange market going forward."