The National Pension Service said on the 23rd that it will manage its currency hedging by disposing of overseas assets from time to time depending on exchange-rate conditions. Until now, when the won-dollar rate rose to a certain band, the National Pension Service sold overseas assets to supply dollars to the market and convert them into won to push the rate down. There were concerns that this rigid pattern was exposed to the market and could become a risk. In response, the National Pension Service plans to run currency hedges flexibly to respond to the strong dollar.
The Ministry of Health and Welfare said it will run a task force (TF) with the National Pension Service to secure "strategic currency-hedge ambiguity." The TF was created to prepare ways to implement strategic currency hedging in a flexible and nimble manner depending on market conditions.
A ministry official said, "Because market participants anticipate and act on the National Pension Service's strategic currency hedging in advance, the National Pension Service is being exposed to exchange-rate volatility risk."
If the won-dollar exchange rate rises much more than expected, the National Pension Service can sell up to 10% of its overseas assets. This is called strategic currency hedging. However, to carry out strategic currency hedging, the National Pension Service must obtain approval from the Fund Management Committee. As a result, criticism has emerged that the National Pension Service finds it difficult to respond immediately to shifts in exchange-rate trends.
There were also concerns that among foreign-exchange market participants it is already known that the National Pension Service implements strategic currency hedging when the won-dollar rate exceeds 1,480 won, reducing the hedge's effectiveness.