NPS emerges as savior of Korea’s ailing won currency

The South Korean state-run National Pension Service (NPS) has been spotted selling dollars for won, supporting the ailing local unit, as the world’s third-largest such fund may have seen the currency bottoming out, foreign exchange market sources in Seoul said.

The NPS sold dollar/won forwards as “tactical” currency hedging on overseas investments, which indicated the pension fund may not expect the South Korean currency to weaken further, said sources with direct knowledge of the trading.

On Tuesday, the NPS, which manages 882.7 trillion won ($616 billion) in assets as of end-June, was suspected of dumping dollars, according to currency market sources.

“The market saw unusually large volumes of dollar sales,” said one of the sources. “The NPS may have aggressively sold dollars.” The dollar/won trading volume totaled $9.1 billion in the domestic foreign exchange market on the day, the largest volume since Sept. 6.

An NPS official said the dollar selling was routine trading and the fund did not have any particular reason for its sales.

STABILIZATION MEASURES

The NPS has been blamed for the weakness in the won, the worst performer among emerging Asian currencies with a 17.1% loss against the dollar so far this year, as the fund raised overseas investments.

But it agreed with South Korea’s foreign exchange authorities last month to open a currency swap line, which will allow the fund to borrow up to $10 billion with maturities of six months or one year for overseas investments from the central bank’s reserves in exchange for won.

The authorities took other various measures in addition to massive currency intervention of selling dollars to prop up the won such as raising the Export-Import Bank of Korea’s credit lines for shipbuilders to $6 billion.

Such moves eased downward pressure on the won, currency market sources said.

Write to Do-Won Lim, Mi-Hyun Jo and Jun-Ho Cha at van7691@hankyung.com
Jongwoo Cheon edited this article.