Lee Chang-yong "Exchange Rate Different from 1997 and 2008... Interest Rate Hike Helps Control Exchange Rate Rise"

Concerns Over Inflationary Pressure Due to Exchange Rate Rise
IMF's Foreign Exchange Reserves Criteria Hold No Significance for Korea

Lee Chang-yong, Governor of the Bank of Korea, is presiding over the Monetary Policy Committee plenary meeting held on the 25th at the Bank of Korea in Jung-gu, Seoul. 220825

[Asia Economy Reporter Seo So-jeong] "The concern about the exchange rate is not so much about its level itself, but about the inflationary pressures it may cause and the increased difficulties for companies, which could affect national competitiveness."

On the 25th, at a press conference held immediately after the regular Monetary Policy Committee meeting, Lee Chang-yong, Governor of the Bank of Korea, responded to a question about whether exchange rate volatility was considered in the decision to raise interest rates by saying, "We expect that the base rate hike will help control the rise of the KRW-USD exchange rate." The Monetary Policy Committee raised the base rate by 0.25 percentage points from 2.25% to 2.50% that day.

As concerns grew with the recent KRW-USD exchange rate soaring to around 1,346 won, the highest level since 2009, Governor Lee made a series of deliberate remarks on the matter. He began by saying, "It seems necessary to clarify why the Bank of Korea is concerned about the rising exchange rate," and then dismissed worries by stating, "Recently, the exchange rate rise seems to be interpreted as if there are liquidity or credit issues in our foreign exchange market, and that a foreign exchange crisis like those in 1997 or 2008 could repeat, but this is different from before."

Governor Lee emphasized, "The recent rise in the exchange rate is due to the strength of the US dollar causing the currencies of other countries to depreciate relatively, not because there are problems with Korea's foreign currency liquidity or creditworthiness."

In particular, Governor Lee actively refuted claims that Korea's foreign exchange reserves are insufficient. He explained, "There have been criticisms that our foreign exchange reserves are insufficient compared to the IMF liquidity standard of 150%, but I came from the IMF," adding, "Korea's foreign exchange reserves rank 9th in the world, and such standards do not hold much significance for countries with large foreign exchange reserves."

Regarding the Korea-US currency swap, he also said, "It is not a means to prevent the rise of the exchange rate," and added, "Countries like the UK, Eurozone, and Canada, which have standing currency swaps with the US, all have depreciated currencies due to the strong dollar."

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