Bank of Korea Governor Lee Chang-yong: "This Year Will Test BOK's Competence... Central Bank's Ability Will Be Revealed"

Bank of Korea, 73rd Anniversary Commemorative Address
Differentiated Inflation Trends and Economic Conditions by Country

"As inflation and economic conditions vary across countries, this year will be a true test of the Bank of Korea's capabilities."

On the 12th, Lee Chang-yong, Governor of the Bank of Korea, stated this in his speech commemorating the 73rd anniversary of the Bank of Korea's founding. He said, "It has been a challenging year, and the coming year does not seem to be any easier." The governor noted, "Over the past year, most central banks, including the Bank of Korea, have rapidly raised interest rates due to high inflation rates, and there was a consensus among our people that price stability should be the top priority. However, this year, inflation trends and economic conditions are likely to diverge by country." As a result, he emphasized that sophisticated policy responses to the trade-off between inflation and growth have become crucial, and in this process, the capabilities of central banks worldwide will be clearly revealed.

Governor Lee said, "Fortunately, Korea's inflation rate dropped to 3.3% last month, but core inflation, which reflects the underlying inflation trend, is still slowing down slowly, so it is too early to be complacent." He added, "Going forward, we will closely monitor the pace of inflation deceleration while carefully considering downside risks to growth, financial stability risks, and changes in monetary policies of major countries such as the U.S. Federal Reserve (Fed), and operate policies more precisely."

The governor evaluated that when the won-dollar exchange rate surged and the Legoland incident intensified instability in the financial and foreign exchange markets last year, the Bank of Korea played a significant role in overcoming the crisis through close policy coordination with the government and supervisory authorities. He said, "In this process, a strong banking sector served as a major pillar," and added, "Recently, signs of easing in the housing market downturn have appeared, but attention is needed regarding financial sector risks such as rising delinquency rates on real estate loans." He also mentioned, "From a mid- to long-term perspective, we must cooperate with related institutions to find a gradual deleveraging plan for household debt to prevent financial imbalances from accumulating again."

"We cannot neglect issues just because we lack supervisory authority over non-bank financial institutions"

Governor Lee emphasized that a paradigm shift is necessary for fundamental changes in both policy and internal management. He explained, "Until now, the main policy target of the Bank of Korea has been banks. According to the Bank of Korea Act, financial institutions refer only to banks, but since the 2000s, the deposit share of non-bank financial institutions has already surpassed that of banks, the proportion of settlement amounts through the Bank of Korea's financial network has continuously increased, and interconnections between banks and non-banks have expanded through fund transactions. As the importance of non-banks and the complexity of the system increase, targeting only banks makes it difficult to achieve the financial stability goals of the entire national economy. I cannot overlook this issue simply because we lack supervisory authority over non-bank financial institutions," he said. "We must strengthen policy coordination with supervisory agencies and, if necessary, devise ways to achieve financial stability goals through institutional improvements."

He also stated, "Until now, the Bank of Korea's liquidity management has focused on absorbing the large-scale liquidity continuously supplied from abroad due to a structural current account surplus, but as domestic and international economic structures change, we must prepare for possible changes in the current account trend and appropriate liquidity scale." He added, "It is necessary to improve systems and operational methods so that liquidity supply can be flexibly provided even during normal times."

Furthermore, as seen in the U.S. Silicon Valley Bank (SVB) incident, with the development of IT technologies such as mobile banking enabling large-scale and rapid fund flows between institutions, he said it is necessary to consider expanding policy tools that can be immediately utilized in crisis detection, such as standing lending facilities. Governor Lee emphasized, "In line with recent payment innovation trends, we must prepare thoroughly to convert the micropayment system to a real-time gross settlement method and to introduce central bank digital currency (CBDC)."

"The era when a prestigious university diploma certifies excellence is over"

Governor Lee viewed internal management changes as urgent. While positive changes toward a "noisy Bank of Korea" have appeared with the introduction of the 'Management and Personnel Innovation Plan,' moving away from the image of the 'Bank of Korea Temple,' he self-assessed that the results related to salary issues, delegation of authority, and work diet have not yet been felt personally. He did not hold back criticism. He said, "The era when a prestigious university diploma certifies excellence is over," and urged, "We must move away from the past reputation that 'only excellent talents enter the Bank of Korea' and now strive and invest so that the phrase 'If an employee has been trained at the Bank of Korea for 10 years, I want to trust and recruit them' becomes established."

Finally, citing the concept of 'Beopgo-changsin (法古創新)'?learning from the old to create the new?Governor Lee asked young employees to be at the center of change. He said, "Even if it is difficult to accept a superior's order, please move away from the attitude of simply accepting it for the sake of atmosphere and actively work to change it. When young employees' ideas and executives' experiences come together, the lesson of Beopgo-changsin can be realized," he added.

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