US monitors NPS, sovereign funds in expanded currency oversight

Washington will strengthen its monitoring of portfolio investments by pension and sovereign wealth funds of its trading partners as it broadens the scope of oversight to include their capital flow and macroprudential measures beyond direct market interventions.

In a semiannual report on macroeconomic and foreign exchange policies of its major trading partners released on Thursday, the US Department of Treasury, in an unprecedented move, provided detailed accounts of the NPS’ advance dollar purchases and foreign exchange swap agreement with the Bank of Korea implemented in 2024.

The US Treasury warned it would employ other potential means to investigate any activities suspected of aiming to depreciate their currencies beyond foreign exchange market intervention.

“These means could include the inappropriate use of capital flow measures or macroprudential measures … or inappropriate activity by government investment vehicles apart from the central bank (such as pension funds or sovereign wealth funds) to target the exchange rate for competitive purposes,” the department said in the report.

The move comes as the US seeks to narrow trade deficits, which President Donald Trump blamed on the persistent weakness of its trading partners' currencies, allowing them to sell products at lower prices in the US.

According to the report based on the US treasury department's analysis for the October-December period, South Korea remains on the monitoring list of nine countries with current account and trading surpluses with the US. In December 2024, South Korea was put back on the list.

NATIONAL PENSION SERVICE'S ASSETS

Total foreign assets held by the NPS increased by around $46 billion over the four quarters through December 2024 from $413 billion to $470 billion, the US Treasury said.

With the NPS, the world’s No. 3 pension scheme, projected to double its assets to 3,500 trillion won ($2.4 trillion) by 2025, it is expected to increase dollar purchases to fund cross-border investments.

To mitigate its impact on the onshore forex market, the NPS tripled its advance foreign exchange purchase limit to $3 billion from $1 billion per month in September 2024. It also expanded its forex swap arrangement with the Bank of Korea (BOK) from $50 billion to $65 billion in December 2024.

Although the relaxation on the NPS’ forward dollar purchase limit and the swap agreement are aimed at shoring up the Korean currency, the fact that the US Treasury provided detailed accounts on the NPS suggests that it will intensifying monitoring of non-intervention foreign exchange activities, said forex market sources.

According to Washington, South Korea runs significant current account and trade surpluses with the US, but its currency has not appreciated much.

In the fourth quarter of 2024, the Korean won plummeted to its lowest level against the dollar since the global financial crisis in the late 2000s. The Bank of Korea slashed the policy rate by a quarter point each in October and November last year.

Domestic financial markets came under pressure following the impeachment of former President Yoon Suk Yeol, who was outsted in April by the Constitutional Court.

In 2024, the Korean won depreciated 12.6% to the dollar and 6.7% on a real effective basis in 2024, the US Treasury added.

South Korea’s goods and services trade balance with the world’s largest economy increased by $14 billion to $55 billion over the course of 2024, according to the US Treasury report.

Its current account surplus reached 5.3% of its gross domestic product in 2024, up from 1.8% in the year prior.

On Thursday, the won closed domestic trade at 1,358.4, a seven-month high amid expectations for economic stimulus measures under new President Lee Jae-Myung, who swore in on Wednesday.

Other countries on the US monitoring list for currency practices and macroeconomic policies include China, Japan, Taiwan, Singapore, Vietnam, Germany, Ireland and Switzerland.

Write to Yeonhee Kim at yhkim@hankyung.com
 

Jennifer Nicholson-Breen edited this article.