In response to won-dollar fluctuations, South Korea's NPS plans to issue foreign currency-denominated bonds by the end of the year

The South Korean government is implementing new measures to stabilize the financial markets. According to First Vice Minister Lee Seul-ran of the Ministry of Health and Welfare, the National Pension Service (NPS), which ranks third in the world in size, plans to issue bonds denominated in foreign currencies rather than in won by the end of this year. This plan demonstrates the Korean government’s strategic response to the rapidly fluctuating won-dollar exchange rate.

The increasing importance of managing the won-dollar exchange rate due to currency depreciation

The decline in the value of the Korean won has significantly impacted NPS’s operations. Since mid-year, the won has depreciated by approximately 7% against the dollar, and in response, NPS has been selling dollars in the foreign exchange forward market to support the won exchange rate.

Against this backdrop, the government’s push for NPS to issue bonds in foreign currencies reflects concerns over the instability of the won-dollar exchange rate. Traditional won-denominated funding increases exchange rate risk, so utilizing foreign currency-denominated bonds is seen as a more effective way to manage the portfolio.

Shift in funding strategy through foreign currency-denominated bond issuance

The issuance of foreign currency bonds by NPS is an unprecedented move for the fund. Historically, NPS has relied mainly on won-denominated funding, but this plan to issue dollar-denominated bonds signifies access to large international capital markets.

At the same time, concerns about additional capital outflows caused by fluctuations in the won-dollar rate are rising. The Korean government’s plan to invest $350 billion based on a trade agreement with the United States has also created a complex currency market environment, making stable funding through foreign currency bonds increasingly important.

Government-led multilateral consultations and efforts to stabilize the market

The government is strengthening a cross-organizational approach rather than relying on a single agency. The Ministry of Health and Welfare, NPS, the Ministry of Finance, and the Bank of Korea have established a consultative body to ensure financial market stability. In their recent inaugural formal meeting, a multi-faceted approach to managing won-dollar exchange rate fluctuations was discussed.

This four-party coordination allows the government to simultaneously maintain the won’s value and efficiently manage dollar funds. Balancing won- and dollar-denominated funding will be key to stabilizing the currency markets and enhancing the overall resilience of the Korean economy.