Won firms to 1,341 as Korea’s $65bn NPS swap line nears year-end expiry

3 Nov 2026, 14:22

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The South Korean won (KRW) firmed to 1,341.0 per US dollar on Tuesday as the $65bn foreign-exchange swap line between the Bank of Korea and the National Pension Service approaches its 31 December expiry. Authorities have not said whether they will renew it or how much of the ceiling is in use.

MoneyTurkey Currencies Desk | 3 November 2026

Key points

The swap line has a $65bn ceiling and runs to the end of 2026. It lets the NPS borrow dollars from the Bank of Korea’s reserves so it does not have to buy them in the spot market.
Neither the Bank of Korea nor the NPS publishes how much of the line is in use. The closest public figure, the authorities’ net forward long position, was $14.9bn at the end of July. That points to only part of the ceiling being used.
No decision on 2027 has been announced. Market participants quoted by Yonhap Infomax expect the line to be extended at an unchanged $65bn.
Since early September the NPS has reportedly suspended hedging and resumed buying dollars, a reversal of its role in the first half of the year, when the won was weak.

The won closed Seoul’s 3:30pm session at 1,341.0 per dollar on Tuesday 3 November, 2.8 won stronger than Monday, Yonhap reported. In dollar-won terms (USD/KRW), the pair traded between 1,346.8 and 1,337.5. Lower oil prices on hopes for US-Iran talks and a weaker dollar index (101.726, down 0.153) outweighed equity outflows: foreign investors sold a net ₩1.52tn of Korean stocks, and the Korea Composite Stock Price Index (KOSPI) fell 3.59% to 5,648.79. Dealers held back ahead of the US midterm elections.

The won’s recovery has changed what the NPS swap line is for. Eight weeks before it expires, the facility that Seoul built up to absorb pension-fund dollar demand when the won was near 17-year lows is now in place while the currency trades close to a two-year high.

What the facility is

Under the arrangement, the NPS gets dollars from the Bank of Korea’s foreign-exchange reserves when it needs them for overseas investment, then returns them when the swap matures. While a swap is outstanding, reserves fall by the amount used. They are restored in full at maturity, so the drop is temporary, Yonhap explained when the line was last extended. Citi economist Kim Jin-wook said individual swaps usually run for six or 12 months, according to Yonhap Infomax.

The finance ministry and the Bank of Korea provide the dollars. The NPS is the counterparty. Commercial banks are not involved. The line opened in September 2022 with a $10bn ceiling. It was raised to $35bn in April 2023, $50bn in June 2024 and $65bn in December 2024. On 15 December 2025 the Bank of Korea said it would run at $65bn until the end of 2026. The central bank said the deal would help “stabilising the foreign exchange market by absorbing the NPS’ demand for spot dollar purchases during periods of market volatility”, Yonhap reported.

Has the ceiling been drawn?

There is no official answer. The Bank of Korea and the NPS do not publish the outstanding balance. In October the NPS refused a lawmaker’s request for the size, cost and currency gains or losses of its hedging, saying that disclosure would expose its strategy to the market, Seoul Economic Daily reported.

The public indicators point to partial use. The authorities’ net forward long position in the International Monetary Fund (IMF) reserves template was $14.9bn at the end of July, up $6.2bn on the month, Yonhap Infomax reported. Market participants attributed much of that rise to NPS swaps. This is a proxy, not a direct measure of the swap balance. Citi’s Kim estimated the fund’s effective hedge ratio at about 4–6% in August, against its 15% baseline target. In February the Bank of Korea said the NPS swaps and its own dollar supply to stabilise the market had cut reserves by $2.15bn in January, to $425.91bn, JoongAng Ilbo reported.

From dollar seller to dollar buyer

For most of 2026 the NPS supported the won. In March it sold dollar forwards under its strategic hedging programme while the currency was near 17-year lows, Reuters reported. On 14 April the National Pension Fund Management Committee set a 15% baseline hedge ratio for overseas assets and confirmed that it would rely on swaps with the authorities to carry out the hedging, according to Yonhap. In June, with USD/KRW above 1,550, NPS forward selling helped push the rate back to the low 1,510s, Seoul Economic Daily reported.

Then the trend reversed. On 7 September the won reached 1,334.7, its strongest level since 4 October 2024, and was up 16% in the quarter. The NPS suspended hedging and started buying dollars, Reuters reported via The Straits Times. Around the same time, the authorities absorbed dollars that SK Hynix sold after its US share listing. The NPS held ₩1,865.6tn of assets at the end of June, 54% of them overseas.

Why it matters for USD/KRW

When the won is weak, the swap line keeps one of the market’s largest dollar buyers out of the spot market. As swaps mature, the NPS can either roll them over with the Bank of Korea or buy dollars in the market to repay them, and the second option would push USD/KRW higher. In March, Yoon Kyung-soo, director general of the Bank of Korea’s International Department, said authorities would roll swaps over in good faith if the NPS asked, and would discuss repayment if it preferred, Seoul Economic Daily reported.

Citi’s Kim said the fund could lower its hedge ratio gradually by letting existing swap-based hedges mature, and could slowly resume spot dollar purchases in the second half. He kept his view that the authorities would like USD/KRW to stay at or below about 1,350, close to where the pair trades now.

Market participants told Yonhap Infomax they expected the line to be extended with the ceiling unchanged, because a cut would send “a tremendous signal to the market”. Seok Byeong-hoon, an economics professor at Ewha Womans University, said the won’s rally owed much to one-off factors, including SK Hynix’s ADR conversion and exporters’ interim corporate tax payments. “It is premature to terminate the FX swap with foreign exchange authorities or lower the limit,” he said. Neither the authorities nor the NPS commented on the size of the line.

What to watch

Renewal decision: whether the line is extended past 31 December 2026, and whether the $65bn ceiling is kept, cut or made conditional. Last year’s extension was approved at the Fund Management Committee meeting on 15 December.
Strategic hedging mandate: the NPS’s temporary strategic hedging period also runs to the end of 2026 and needs a committee decision.
Reserves and forward data: the Bank of Korea’s monthly reserves release and the IMF-template forward position are the only public signs of how much of the swap is in use.
Spot flows: how heavily the NPS buys dollars if USD/KRW stays below about 1,350, and how strongly foreigners keep selling Korean equities.
US midterms and the dollar: the results due overnight could move the dollar index and Asian FX at the open.
Funding diversification: a proposed change to the National Pension Act would let the NPS issue foreign-currency bonds and reduce its reliance on the swap line.

Sources

This article is for information purposes only and does not constitute investment advice. MoneyTurkey does not recommend buying or selling any currency, security or other financial instrument.

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