A Preview of Shin Hyun-song Before the Hearing: His Perspective on Exchange Rates, Inflation, and Interest Rates

"Low Likelihood of Stagflation... Continued Management of Household Debt Needed"

Concerns Over a Repeat of the First and Second Oil Shocks Are "Overstated"

"Korea’s Foreign Exchange Reserves Are Sufficient as a Buffer Against External Shocks"

Caution on Rate Hikes: "Consider Only If Shocks Persist for an Extended Period"

Shin Hyun-song, nominee for the Governor of the Bank of Korea, expressed the view that while the Korean economy has been impacted by the Middle East conflict—especially regarding issues such as exchange rates, inflation, and interest rates, which are seen as major risks—he believes the country largely has sufficient capacity to cope.

According to responses provided by Shin to requests for materials from Assemblymen Park Sunghoon of the People Power Party, Cha Kyugeun of the Reformative Party for the Motherland, and Chun Haram of the Reformative Party, all members of the National Assembly’s Strategy and Finance Committee, Shin cited the sharp rise in the KRW-USD exchange rate as being caused by several independent factors: a surge in oil prices due to heightened tensions in the Middle East, a global risk-off sentiment, and net selling of domestic stocks by foreign investors. However, he stated, "I think it is excessive to directly link the current exchange rate situation to past crises based on the exchange rate alone." He emphasized that since external soundness, dollar liquidity, and Korea’s inclusion in the World Government Bond Index (WGBI) are positive factors, excessive pessimism is unwarranted.

He also addressed concerns about the possibility that high oil prices and a strong dollar could create a situation similar to the first and second oil shocks of the 1970s, calling such worries "overstated." Shin explained that global energy dependence is much lower now than in the 1970s, Korea’s economic fundamentals and the government’s response capacity have improved significantly, and the current rate of oil price increase—at 50 to 60%—is well below the peak of 381% seen during the historical oil shocks, making direct comparisons inappropriate.

Regarding Concerns Over Korea’s Foreign Exchange Reserves: "Sufficient Buffer Against External Shocks"... Caution on Rate Hikes

Shin also commented on Korea’s foreign exchange reserves, which stood at 423.6 billion dollars as of last month, saying, "They are not insufficient to serve as a buffer against external shocks," drawing a line against calls to further increase reserves to stabilize the exchange rate. He cited Korea’s net external financial assets, amounting to 904.2 billion dollars at the end of last year (48.3% of GDP), and a low short-term external debt ratio (41.8%) as reasons for his view.

Nevertheless, Shin also indicated a willingness to actively utilize currency swaps and other arrangements with major central banks. "Through my experience at the Bank for International Settlements (BIS), I will maintain close communication with major central banks and ensure that financial safety nets such as currency swaps function as stabilizing signals for the market," he said.

Addressing some opinions that the interest rate gap between Korea and the United States is fueling the KRW-USD exchange rate rise, Shin disagreed: "The exchange rate is affected by many factors beyond the domestic-foreign interest rate differential, including global risk appetite, foreign exchange market supply and demand, and expectations, so it is difficult to explain exchange rate movements by interest rate differentials alone." On dollar hegemony, he stated, "The share of the dollar in international settlements remains solid, and the proportion of transactions using the US dollar in global foreign exchange markets is still high," indicating that the dollar’s dominance remains firm.

On the question of raising the policy rate, Shin took a principled stance: "It is not desirable to respond to temporary supply shocks with monetary policy; however, if such shocks persist for an extended period, their impact on inflation and growth could increase, which would warrant a review of possible responses." This is interpreted as a cautious approach, mindful of the potential market impact of a premature statement in favor of rate hikes by the central bank governor nominee.

Low Likelihood of Stagflation... Need for "Downward Stabilization" of Household Debt

Shin assessed that the likelihood of stagflation—a simultaneous occurrence of economic stagnation and rising prices—is not high. "Although recent energy price increases and supply disruptions due to the Middle East conflict have heightened upward pressure on inflation and downward pressure on growth, a recovery in the semiconductor sector and the government’s supplementary budget are expected to partially buffer these shocks," he said.

Regarding household debt, Shin expressed concern, noting it is at a level that hampers Korea’s economic growth and is higher than in other major economies, necessitating continued management. Last year, the estimated household debt ratio stood at 88.6%, while major domestic and international studies suggest the critical threshold for household debt that constrains consumption and economic growth is around 80–85%. Shin noted, "As of the third quarter of last year, BIS statistics show that Korea ranked sixth globally with 89.4%, following Switzerland (121.9%), Australia (113.2%), Canada (100.2%), the Netherlands (93.8%), and New Zealand (90.6%)." He emphasized, "It is necessary to continue efforts to bring the household debt ratio down and stabilize it—both for financial stability and for the real economy." He proposed responding with consistent management based on lending principles that consider borrowers’ repayment capabilities, creating incentives for financial institutions to reduce mortgage lending, and ensuring organic policy coordination between the government and supervisory authorities.

Stablecoins Can Coexist with CBDC... Continued Push for Project Han-gang

Shin Hyun-song, nominee for Governor of the Bank of Korea, answers reporters' questions as he arrives at the hearing preparation office set up at Hanwha Financial Plaza in Jung-gu, Seoul on March 31, 2026. Photo by Dongju Yoon

Shin stated that stablecoins can exist in a complementary and competitive relationship with central bank digital currencies (CBDC), and he supports their introduction. He explained that stablecoins have positive effects, such as serving as a means of transaction for tokenized assets, and thus have a significant role to play in the future monetary ecosystem. However, he emphasized that to maintain trust in currency value, deposit tokens based on CBDC should be at the core of the digital ecosystem. "Deposit tokens facilitate regulatory compliance, such as anti-money laundering and customer identification, and guarantee the singularity of currency," Shin said. During his tenure at BIS, Shin led the Agora Project, which aimed to improve the efficiency of cross-border payments using CBDC and deposit tokens. He added that he will continue to advance Project Han-gang, expand global cooperation through initiatives such as the Agora Project, and proactively address risks to the financial system.

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