Ha Hyun-ock
The author is an editorial writer at the JoongAng Ilbo.
The Korean won is rapidly weakening. For the first time in 17 years, since the global financial crisis, the dollar-won exchange rate has surpassed 1,500 won. On Monday, it reached 1,517.3 won. The threshold of 1,500 won per dollar, long seen as a psychological ceiling, had previously been breached only during the 1997 Asian financial crisis and the 2008 global financial crisis. Concerns are now growing that 1,500 won may become the new normal.
The dealing room at Hana Bank’s headquarters is seen on the afternoon of March 23. The Kospi closed sharply lower at 5,405.75, while the dollar-won exchange rate at one point fell to 1,518 won per dollar. [KANG JUNG-HYUN]
A surging exchange rate also revives a familiar pattern: the search for a culprit. Late last year, policymakers focused less on treating the exchange rate as a warning signal and more on identifying those responsible for pushing it higher. Retail investors buying overseas stocks and the National Pension Service (NPS) became prime targets. The NPS was mobilized on the front lines of exchange rate defense through so-called strategic currency hedging, while retail investors were encouraged to return to domestic markets through special accounts aimed at securing dollar liquidity.
This time, the sharp rise in the exchange rate has a clearer external driver in the Middle East conflict. While the government may avoid directly blaming the NPS and retail investors as before, both remain vulnerable to criticism given their perceived role in foreign exchange market movements. The NPS, in particular, now faces policy pressure. The ruling party has proposed an amendment to the National Pension Act that would allow the fund to issue foreign currency bonds.
Under current law, the NPS fund is financed by pension contributions, investment returns, accumulated reserves and operating surpluses. It is not designed to raise funds through debt issuance. The proposed amendment would effectively open the door for the NPS to borrow in dollars in order to reduce its impact on the domestic foreign exchange market as it expands overseas investments. Public responses to the proposal have largely been critical.
The NPS is a dominant market player. As of the end of 2025, the National Pension Service’s assets totaled 1.46 quadrillion won ($991 billion), based on the December 2025 average exchange rate of 1,472.2 won per dollar. Of that total, 861 trillion won, or 59.06 percent, was invested overseas.
According to the Bank of Korea, the NPS purchased $40.7 billion worth of foreign stocks last year. Its scale gives it significant influence over market conditions. The currency swap arrangement with the central bank was also intended to mitigate the impact of the NPS’s foreign exchange demand.
Increasing overseas investment to improve returns is unavoidable for the NPS. From the government’s perspective, however, rising demand for foreign currency can put pressure on the exchange rate. Yet asking the NPS to issue foreign currency bonds while it already holds substantial reserves raises concerns. Such a move would not be driven by investment strategy but by policy considerations, effectively using retirement funds to manage exchange rate fluctuations.
The immediate issue is interest costs. Borrowing requires paying interest to creditors. Market participants expect NPS foreign currency bonds to carry rates similar to those of Exchange Stabilization Fund bonds or policy banks, around 4 percent annually, with additional premiums depending on conditions.
If the NPS were to issue $40 billion in foreign currency bonds to fund overseas investments, annual interest payments alone would amount to roughly $1.6 billion, or about 2.4 trillion won. At the same time, the fund would need to generate returns exceeding that interest rate, increasing pressure on investment performance. Finding suitable investment opportunities for the additional funds would also pose challenges.
The National Pension Service's headquarters in Jeonju, North Jeolla [YONHAP]
There is also a risk of higher borrowing costs across the economy. If the NPS enters the foreign currency bond market, it would compete with government and corporate issuers, potentially driving up interest rates. This crowding-out effect could raise financing costs for companies and increase the government’s own borrowing burden.
Some have also raised questions about whether such debt should be counted as part of national liabilities. Even if not classified as central government debt, it could be included in broader general government debt, potentially affecting Korea’s sovereign credit rating.
A weakening won signals deeper concerns about the Korean economy. Addressing it requires broader policy adjustments in fiscal and monetary management. Relying on the NPS to take on dollar debt as a tool of exchange rate defense is at best a temporary measure and could produce unintended consequences.
Ultimately, it is inappropriate to place the burden of exchange rate management on the retirement funds of 21.6 million subscribers. Structural economic measures, not ad hoc financial engineering, are needed to stabilize the currency.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
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