An employee organizes dollar bills at the Counterfeit Response Center of Hana Bank in Jung District, Seoul, Nov. 15. Yonhap

Korea's foreign currency authorities said Thursday they agreed with the state pension operator to increase the upper limit of their currency swap arrangement to $65 billion to better cope with market volatility.

Under the deal, the National Pension Service (NPS) can now borrow up to $65 billion, up from the previous cap of $50 billion, from the Bank of Korea (BOK)'s foreign reserves for overseas investment, according to the BOK and the finance ministry.

The arrangement will be extended by one more year until late 2025.

The currency swap deal was first established in September 2022 with an initial limit of $10 billion. Since then, the limit has been increased to $35 billion in April 2023 and again to $50 billion in June 2024.

The ministry said the latest deal is expected to alleviate U.S. dollar demand in the spot market from the NPS for its overseas investments, thereby helping to stabilize the foreign exchange market, which has recently experienced heightened volatility.

On Thursday, the Korean won sharply fell against the U.S. dollar to breach the 1,450 won mark for the first time since the 2009 global financial crisis.

The local currency was trading at 1,451.9 won against the greenback at 3:30 p.m., down 16.4 won from the previous session to reach a 15-year low.

Market observers attributed the weakened currency to political instability stemming from the brief imposition of martial law and the U.S. Federal Reserve's hawkish stance on further interest rate cuts.

The NPS, the world's third-largest retirement fund, also said it will keep its strategic foreign exchange hedging ratio at a maximum of 10 percent for one more year until the end of 2025. (Yonhap)