Gov't mulls issuing foreign currency bonds through NPS

An electronic trading board at Hana Bank headquarters in Seoul, Tuesday, shows the Korean currency trading at 1,469 won per dollar during the intraday session. Yonhap

The Ministry of Health and Welfare is reviewing the potential issuance of foreign currency bonds through the National Pension Service (NPS) and, if necessary, considering a legal amendment to facilitate the issuance, government officials said Tuesday.

The move is in line with a key objective of the four-way consultative body composed of the Ministry of Health and Welfare, the NPS, the Ministry of Economy and Finance and the Bank of Korea (BOK).

Launched on Nov. 24, the body aims to enhance coordination on fiscal, monetary and overseas investment policies, in addressing concerns that the NPS’ overseas investments, estimated at more than 580 trillion won ($395 billion), may be contributing to capital outflow.

The Korean currency persistently remains at a worrisome level of more than 1,400 won per dollar.

Under the circumstances, the government officials said the Division of National Pension Finance under the Bureau of Pension Policy has begun a full-scale review of the need and validity of issuing foreign currency bonds for the NPS.

“If diversifying foreign currency funding is deemed necessary for stabilizing exchange rates, the government will move forward with a legal amendment,” a health ministry official said.

The NPS cannot issue debt, as the National Pension Act currently limits its funding sources to insurance contributions, investment income, reserves and settlement surpluses.

As such, an amendment to the act would be required for the issuance of foreign currency bonds.

Market observers expect that raising part of the NPS’ overseas investment funds directly through foreign currency bonds would reduce the amount of won the fund needs to sell in the spot market to secure dollars.

This approach is seen as a way to disperse dollar-buying pressure from new overseas investment allocations, thereby mitigating shocks to the foreign exchange market.

Meanwhile, the finance ministry has launched an in-house task force to address heightened volatility in the foreign exchange market.

The new task force is led by the Foreign Exchange Market Division under the International Finance Bureau, with a focus on detailed policy measures to stabilize foreign exchange supply and demand.

It will also monitor the currency-related activities of exporters, securities firms and the NPS, all of which significantly influence foreign exchange flows.

The task force plans to regularly review trends in exporters’ foreign currency conversions and overseas investments.

To encourage greater cooperation, it is also considering a range of incentives for companies that convert their dollar holdings into won — measures that could help strengthen the local currency.

Tax incentives are among the options, including raising the exemption on dividends received from overseas subsidiaries from 95 percent to 100 percent.

“This is intended to address situations where companies, expecting the dollar to rise, refrain from supplying dollars to the market and instead hold onto them for further gains,” a finance ministry official explained.