This article was first published on Signal, the Seoul Economic Daily's capital markets newsletter, at 17:16 on March 31, 2026.
The government is pushing to raise the National Pension Service's strategic currency hedge ratio from the current 10% to 15%. The move comes as a drastic measure amid the won-dollar exchange rate persistently exceeding 1,500 won.
According to investment banking industry sources and government officials on March 31, the New Framework — a consultative body involving the Ministry of Economy and Finance, the Ministry of Health and Welfare, the Bank of Korea (BOK) and the National Pension Service (NPS) — discussed raising the NPS's strategic currency hedge to 15% of overseas investments. Currently, the NPS can hedge up to a maximum of 15% through a combination of its strategic currency hedge (10%) and a discretionary tactical currency hedge of up to 5%.
Raising the strategic hedge ratio to 15% would allow the NPS to hedge up to 20% of its foreign assets. An additional 5 percentage points of hedging would have a dollar supply effect worth tens of trillions of won on the foreign exchange market.
Views within the New Framework are reportedly divided. The Ministry of Economy and Finance is said to have requested the expansion of strategic currency hedging, arguing that stabilizing the foreign exchange market is necessary. The NPS is reportedly concerned about deploying citizens' retirement funds to stabilize the currency market.
The won-dollar exchange rate opened at 1,518.9 won in the Seoul foreign exchange market on Monday and closed daytime trading at 1,530.1 won. The intraday rate was the highest since the 2009 financial crisis. The Korea Composite Stock Price Index (KOSPI) closed at 5,052.46, down 224.84 points (4.26%) from the previous session, barely holding the 5,000 line. Foreign investors sold nearly 4 trillion won worth of stocks, driving up the intraday exchange rate.
As the exchange rate surged, authorities intervened verbally. Yoon Kyung-soo, director of the international department at the Bank of Korea, said, "In terms of supply and demand, there has been a large outflow of foreign stock funds, and we are monitoring the situation." He added, "If herding becomes pronounced and the divergence from other currencies widens, we will respond."
Raising the strategic currency hedge ratio to 15% requires approval from the Fund Management Committee. A key variable is that the increase could be blocked by the committee if the impact on returns proves significant.
