Rhee Chang-yong, the Bank of Korea (BOK) governor, said on the 27th, "The National Pension Service has become a major factor behind the herd behavior in the exchange rate," adding, "Wouldn't it help the public as a whole to pursue institutional improvements through four-way consultations with the Bank of Korea (BOK), the Ministry of Economy and Finance (MOEF), and others."
At a briefing, Rhee was asked, "Do you think the government should mobilize the National Pension Service to stabilize the exchange rate even at the risk of people's retirement assets." In response, Rhee said, "The pension has grown too large to completely ignore its impact on the macroeconomy, and the side effects on the foreign exchange market have also increased."
He went on, "If it is difficult for the National Pension Service to act on its own, wouldn't it help the public as a whole to pursue institutional improvements through four-way consultations with the Bank of Korea (BOK), the Ministry of Economy and Finance (MOEF), and others that play macro roles." He added, "The main factor behind the herd behavior in the (exchange rate) has become the National Pension Service, expectations about that have formed, and the private sector is also taking asset overseas, so let's put our heads together and find an appropriate answer."
Rhee also said, "I will explain on behalf of the vice premier that it is not the case that the government mobilizes the National Pension Service whenever needed." He added, "The exchange rate is an immediate issue, but to protect people's retirement assets, the National Pension Service needs to hedge and consider various options to secure profitability."
Regarding the won-dollar rate recently approaching 1,500 won, Rhee said, "I am not worried about the level (of the exchange rate)." He said, "The reason the exchange rate is rising is not the Korea-U.S. interest rate gap or foreign bondholders, but because overseas investment by domestic investors is increasing," adding, "I see the current phenomenon as unique to Korea."
However, he said, "Pension funds invest heavily overseas, and I am not sure if risk management will be in place when the exchange rate fluctuates," adding, "We need to discuss with the government what degree (and scale) of intervention in the market would be appropriate." He added, "If we prevent herd behavior in the exchange rate, it could improve quickly."