[Exclusive] Bank of Korea to Increase Executives by 2... Employment Stability Also Included in Responsibilities

[Image source=Yonhap News]

Increasing Executive Members from 7 to 9

First Proposal of the Amendment to the Bank of Korea Act

Expanding Authority and Organization Like Overseas... Due to Broadened Roles Including CBDC

Questionable Whether Employment Issues Can Be Solved Through Monetary Policy

[Asia Economy Reporter Kim Eunbyeol, Sejong=Reporter Jang Sehee] An amendment to the Bank of Korea Act that increases the number of executive members, including the Governor, Deputy Governors, and Deputy Governors, from 7 to 9 will soon be introduced. The National Assembly is pushing to add 'employment stability' to the Bank of Korea's responsibilities, with the intention of expanding both its scale and authority. This is the first time an amendment to increase the number of executive members has been proposed.

According to the 'Partial Amendment to the Bank of Korea Act' by Kim Jooyoung, a member of the National Assembly's Planning and Finance Committee from the Democratic Party, obtained by Asia Economy on the 9th, Kim plans to revise Article 32 of the Bank of Korea Act to increase the number of Deputy Governors from 5 to 7. The number of Deputy Governors has not changed for 59 years since 1962. The plan is to enhance policy execution capabilities by expanding senior experts and subdividing their areas of responsibility to respond to the COVID-19 crisis and rapidly changing IT and financial environments. If the bill passes, the Bank of Korea's executive members will total 9, including the Governor and Deputy Governors. The new Deputy Governors are expected to be responsible for central bank digital currency (CBDC), big tech regulation, employment stability, and legal affairs.

The amendment also includes adding financial stability and employment stability alongside price stability in the purpose clause of Article 1 of the Bank of Korea Act. It stipulates that the Bank of Korea's monetary and credit policies should harmonize not only with the government's economic policies but also with employment policies (Article 4). It also includes a provision (Article 87) that the Bank of Korea cannot refuse requests for data submission and expands the scope of such requests to all financial institutions.

National Assembly's Full Effort to 'Expand Bank of Korea's Role'

The ruling party proposed the amendment to increase the Bank of Korea's executive members to reflect the goal of 'employment stability' in Article 1 of the Bank of Korea Act.

There are currently four amendment bills to change Article 1 of the Bank of Korea Act. These include members Kim Jooyoung, Kim Kyunghyup, Park Kwangon (Democratic Party), and Ryu Seonggeol from the opposition People Power Party, who is the ranking member of the Planning and Finance Committee. Although slightly different, the atmosphere in the National Assembly is leaning toward adding 'employment stability' to Article 1 regardless of party lines. As many as 34 lawmakers have joined the already proposed amendments. Kim explained the background of the proposal, saying, "As domestic and international economic conditions change, adding employment stability to the purpose clause expands the scope of the Bank of Korea's policies." Kim has continuously advocated for strengthening the Bank of Korea's role and organization since the October 2023 audit.

However, the National Assembly's move to 'expand the Bank of Korea' cannot be simply viewed as a 'carrot and stick' approach. The dominant interpretation is that it aligns with the global trend of expanding central banks' roles after COVID-19. Since central banks worldwide have not only lowered benchmark interest rates but also purchased increased government bonds and even bought distressed corporate bonds and commercial papers (CP), playing a significant role as the 'lender of last resort,' the logic that central banks should also bear responsibility for employment and the real economy has rapidly emerged. The prolonged low inflation and the difficulty of using the inflation target (2%) as the main basis for monetary policy, as well as the U.S. Federal Reserve's emphasis on employment over inflation, have also supported the expansion of the Bank of Korea's role. Countries that explicitly include 'employment' in their central bank laws include the United States, Australia, New Zealand, Canada, Argentina, and Norway.

Expansion of Authority and Organization... Doubts About Solving Employment Through Monetary Policy

Inside the Bank of Korea, there is general agreement with the ruling and opposition parties' moves. A senior Bank of Korea official stated, "Both ruling and opposition parties agree that the employment situation is severe enough to propose amendments."

The 'strengthening of data submission request rights' specified in the lawmakers' bill is also considered a long-standing wish within the Bank of Korea. Currently, the Bank of Korea faces no penalty if it refuses data submission requests. If the right to request data is strengthened, it will be easier to grasp various market statistics, such as the status of 'Younggeul' (borrowing to the limit) and 'Debt Investment' (borrowing to invest). It will also enable quick identification of instability in non-bank financial institutions such as financial investment companies, facilitating the implementation of monetary and credit policies.

However, whether the Bank of Korea's monetary policy can solve employment issues remains uncertain. At last month's Monetary Policy Committee meeting, one member asked why the correlation between the unemployment rate and the benchmark interest rate is low. The relevant department responded, "There is a high proportion of self-employed people who are likely to be immediately classified as economically inactive upon job loss, and temporarily furloughed workers are classified as employed, so the unemployment rate has limitations in accurately reflecting employment conditions." This means there is no certainty that lowering the benchmark interest rate further will reduce the unemployment rate.

Another issue is that when monetary policy has multiple goals, conflicts may arise. For example, if real estate prices surge and interest rates need to be normalized, but employment remains at a low level, there could be side effects such as failing to raise interest rates in time. Kim explained, "Just because the goals are listed side by side in the purpose clause does not mean all goals must be pursued simultaneously." The Bank of Korea plans to submit opinions to the National Assembly in February and complete research as soon as possible.

This content was produced with the assistance of AI translation services.