NPS South Korea Expands Foreign Exchange Strategy to Address Market Volatility

Facing ongoing exchange rate pressures, South Korea’s National Pension Service (NPS) plans to issue dollar bonds by the end of 2025, marking a significant step in diversifying funding sources. This initiative reflects the government’s efforts to strengthen foreign exchange management amid increasing market volatility.

Won Weakness and Pressure on the Largest Pension Fund

Wonkorean has depreciated approximately 7% since mid-2025, creating serious challenges for the NPS—one of the largest pension funds in the world—in managing its foreign currency exposure. This currency weakness not only impacts the fund’s investment performance but also complicates Seoul’s plans to invest up to $350 billion in the U.S. industrial sector based on bilateral trade agreements with Washington.

The NPS’s response includes strategic dollar sales in the forward currency market to support the won and anticipate further volatility. This strategy highlights the importance of proactive currency management in protecting national pension assets.

Dollar-Denominated Bonds as a Stabilization Mechanism

Issuing foreign currency bonds is a new innovation for the NPS and is designed to achieve multiple objectives: reduce dependence on a single funding source, capitalize on global market opportunities, and contribute to the stability of the won’s exchange rate. By issuing bonds in dollar denominations, the fund can manage currency exposure more efficiently while strengthening its long-term liquidity position.

This move also reflects a deep understanding of global currency market dynamics and the need for more flexible financing instruments.

Cross-Institutional Coordination for Financial Market Stability

In an effort to coordinate responses to market challenges, the Ministry of Health and Welfare, NPS, Ministry of Finance, and the Bank of Korea will hold their first formal meeting as a quadrilateral advisory body. This forum is designed to develop joint strategies to maintain financial market stability and address ongoing currency volatility.

This multi-institutional collaboration demonstrates the government’s commitment to tackling foreign exchange challenges through a coordinated approach involving all key stakeholders in the national financial system.