South Korea’s foreign exchange authorities and the state pension fund operator opened a currency swap line of 35 billion U.S. dollars to ease volatility in the won/dollar exchange market, the central bank and the finance ministry said Thursday.
The forex swap line, which will be run by the end of this year, allows the National Pension Service (NPS) to borrow up to 35 billion dollars from the Bank of Korea (BOK)’s foreign reserves in exchange for the local currency payment.
Through the swap line, the NPS can borrow dollar funds from the foreign exchange authorities for its overseas investment, alleviating the dollar demand in the foreign exchange market.
Affected by the swap line agreement, the won/dollar exchange rate finished at 1,310.4 won per dollar on Thursday, down 15.3 won from the previous close.
Despite the weak U.S. dollar trend, the South Korean currency recently retreated versus the greenback on the back of the continued export fall and trade deficit.
The BOK said the decreased foreign reserves, caused by the swap line with the NPS, will be temporary as the funds are fully returned at maturity.
