South Korea's foreign exchange authorities recorded a net long forward position of $6.359 billion at the end of May, marking a $1 billion increase from the previous month's $5.359 billion, according to International Monetary Fund data. The position extended its growth streak to four consecutive months through May, driven by ongoing currency hedging volumes tied to the extended foreign exchange swap contract between the Bank of Korea and the National Pension Service. The IMF's International Reserves and Foreign Currency Liquidity data provides monthly snapshots of official sector forward FX positions, capturing the combined effects of swap arrangements, offshore non-deliverable forward market interventions, and contract rollovers.
FX Authorities' Forward Position Reversed Nine-Month Decline in February
The forward long position reached approximately $31.2 billion in May of last year before declining for nine consecutive months to $1.294 billion in January this year. Market participants attributed the sustained decrease to dollar-selling interventions in the offshore non-deliverable forward market during the period of sharp dollar-won exchange rate appreciation. The position began rising again in February this year, with the National Pension swap contract extension identified as the primary driver of the reversal.
Bank of Korea Extended $65 Billion Swap Limit with National Pension at End of Last Year
The Bank of Korea and the National Pension Service extended their foreign exchange swap contract with a $65 billion limit for one additional year at the end of last year. Under this arrangement, when the National Pension procures overseas investment funding through the Bank of Korea, the transaction registers as an increase in the foreign exchange authorities' forward long position. Authorities confirmed that the swap contract extension volumes contributed positively to recent forward position expansion, while noting that the position data incorporates multiple factors including offshore NDF market interventions, contract maturities, and rollovers, making it difficult to isolate individual drivers of monthly changes.
National Pension Continued Forward Selling Despite 1.85% Won Depreciation in May
The dollar-won exchange rate rose 1.85% on a monthly basis in May, extending the high exchange rate environment. Despite this appreciation, the National Pension Service maintained its currency hedging activity through forward selling. Spot dollar purchases related to overseas investment were rarely observed in the Seoul foreign exchange market during May, indicating that a substantial portion of the National Pension's dollar demand for overseas investment continued to be sourced through the swap arrangement with the Bank of Korea. Market observers noted that while the National Pension establishes forward selling positions for currency hedging when procuring funds via the Bank of Korea swap, subsequent contract rollovers at maturity create timing differences between actual hedging volumes and monthly changes in authorities' forward positions.
FAQ
What caused South Korea's FX forward position to increase in May?
The $1 billion increase to $6.359 billion at end-May resulted from the fourth consecutive month of growth tied to the extended $65 billion foreign exchange swap contract between the Bank of Korea and the National Pension Service, with ongoing currency hedging volumes from the National Pension's overseas investment funding reflected in the authorities' forward long position.
How does the Bank of Korea swap arrangement affect forward position data?
When the National Pension Service procures overseas investment funding through the Bank of Korea swap facility, the transaction registers as an increase in the foreign exchange authorities' net long forward position, though the monthly position changes also incorporate offshore NDF interventions, contract maturities, and rollovers, creating timing differences between actual hedging activity and reported data.
Why did the National Pension continue hedging during May's won depreciation?
The National Pension Service maintained forward selling for currency hedging throughout May despite the 1.85% monthly dollar-won appreciation, with spot dollar purchases for overseas investment rarely observed in Seoul's FX market, confirming that the majority of the fund's dollar procurement continued through the Bank of Korea swap channel rather than spot market transactions.
