Shin Hyun-song: "I Will Uphold Price Stability... Regret Over Personal Controversies, No Wrongdoing Intended" (Comprehensive)

Shin Hyun-song, the nominee for Governor of the Bank of Korea, emphasized his commitment to ensuring price stability, which is one of the Bank's key mandates. However, he assessed the likelihood of stagflation-where inflation and economic recession occur simultaneously-as low. Regarding the current high exchange rate, which has fluctuated above the 1,500 won level, he attributed the situation to increased over-the-counter (OTC) derivatives trading, describing it as "the tail wagging the dog." He pointed out that rapid exchange rate fluctuations are more significantly influenced by the interest rate gap between Korea and the United States than by increased liquidity. Regarding personal controversies such as his transfer to Korea University and his family's nationality, he expressed regret and clarified, "There was no deliberate intention to seek personal gain."

Shin Hyun-Song, candidate for the Governor of the Bank of Korea, is attending a confirmation hearing held on the 15th by the National Assembly's Finance and Economy Committee and responding to questions from lawmakers.

원본보기 아이콘

At the confirmation hearing before the National Assembly's Strategy and Finance Committee on April 15, Shin was asked by Assemblyman Jung Il-young of the Democratic Party of Korea about Middle East-related risks facing the Korean economy. Shin responded, "Stagflation refers to a situation where inflation and economic recession occur at the same time. While growth is slowing, stagflation would require negative growth as a precondition," and thus assessed the possibility as low.

However, he did express concern over the Middle East situation, such as oil price shocks. Shin stated, "If the Middle East crisis is not resolved quickly, inflationary pressures will rise. If the shock is temporary, there is no need to respond with monetary policy, but if it persists and is reflected in prices, leading to overall inflation, then monetary policy would have a role to play."

Regarding the public perception that he is a "pragmatic hawk" (favoring monetary tightening), Shin said, "I do not agree with that characterization." He added, "It is not desirable to divide policymakers into hawks and doves." When Assemblyman Jin Sung-joon of the Democratic Party referred to Shin's past media interview-where Shin had said that raising interest rates to respond to inflation is better than underreacting-Shin explained, "At the time of the interview in 2022, during the Ukraine war, inflation in major countries was reaching double digits, and I thought a proactive response was appropriate." He further stressed, "It is not appropriate to always respond with the same tools and methods; policy should be implemented after comprehensively considering economic and financial conditions."

Shin Hyun Song, nominee for Governor of the Bank of Korea, is speaking at the confirmation hearing held on the 15th by the National Assembly's Planning and Finance Committee.

원본보기 아이콘

On the issue of the won-dollar exchange rate fluctuating above 1,500 won, Shin evaluated that increased OTC derivative trading has caused "the tail to wag the dog." He noted, "As seen in March this year, when the financial system itself is shocked and undergoes significant changes, market movements occur through channels not captured in capital flows. The forward exchange market, in particular, appears to be very important."

He further stressed, "Not only this time, but also during the U.S. reciprocal tariff issue in April last year, and the unwinding of the yen carry trade two years ago, there were more transactions through OTC derivatives than on-book capital outflows. This time, the offshore non-deliverable forward (NDF) market in Korea also played a significant role."

Shin expressed agreement with the recent decision by the Bank of Korea's Monetary Policy Board to freeze the base rate at 2.50% for the seventh consecutive time. When Assemblyman Kwon Young-se of the People Power Party asked about the recent rate decision, Shin replied, "At that time, it was the early stage of the Middle East crisis, and uncertainty was extremely high. While a supply shock (in oil) could lead to rising expected inflation or core inflation, at that point, such phenomena had not yet appeared, so it was appropriate to watch the situation a bit longer."

Regarding the claim that excessive liquidity drove up the won-dollar exchange rate, Shin assessed, "Rapid exchange rate fluctuations are influenced more by the interest rate gap with the United States than by liquidity." He explained, "Broad money (M2) is an indicator that includes bank deposits, and as an endogenous variable, its relationship with the exchange rate is not clear." He added, "When the exchange rate moves sharply, as in March, transactions through forwards have a much larger impact than the total amount of capital outflows, and these forward transactions are ultimately determined by the Korea-U.S. interest rate gap."

Shin Hyun-song, nominee for Governor of the Bank of Korea, is submitting a written oath to Chairperson Im E-ja at the confirmation hearing held on the 15th by the National Assembly's Budget and Economy Committee.

원본보기 아이콘

Shin identified the household debt problem as an issue that must be addressed through government real estate supply policies or macroprudential measures. He commented, "Household debt is not just a financial stability issue but is also directly linked to growth. If household debt is high, consumer dynamism declines and the overall economic flow comes under significant pressure."

He continued, "If the household debt-to-GDP ratio falls below 80%, debt does not impede growth, but if it remains above 80% or 85%, it starts to impact growth. Monetary policy alone, through interest rate adjustments, cannot control household debt. Macroprudential tools such as the debt service ratio (DSR) must also be utilized."

In response to Assemblyman Oh Ki-hyung of the Democratic Party, who noted that Korea did not experience household debt deleveraging after the 2008 Lehman Brothers crisis unlike the U.S., Shin said, "Countries that suffered a severe global financial crisis succeeded in deleveraging. Korea, compared to the U.S. and U.K., did not experience as severe a crisis at the time, so household debt increased at a relatively moderate pace."

He added, "Monetary policy affects the entire economy indiscriminately, so to address household debt, it is appropriate to use targeted macroprudential policies. The DSR policy is one such tool." However, he also pointed out, "DSR policy alone is not enough; it is better to implement various policies together in a comprehensive manner."

However, Shin disagreed with the idea of the Bank of Korea being given authority over macroprudential policies such as the DSR. He said, "The DSR is directly linked to the supervisory powers over financial institutions, so it would be problematic for the Bank of Korea. The Bank does not conduct micro-level supervision of financial institutions, so it could be difficult. I believe related institutions should cooperate to establish an overall regulatory framework for the financial sector."

Shin Hyun-song, nominee for Governor of the Bank of Korea, is taking the oath at the confirmation hearing held on the 15th at the National Assembly's Committee on Budget and Economy.

원본보기 아이콘

On this day, Shin found himself at the center of controversy over his transfer to Korea University, his daughter's nationality, and his foreign currency assets. Addressing these issues, Shin stated, "There was no intentional act to seek any benefit," and stressed, "If I am appointed as Governor, I will promptly resolve all outstanding issues and dedicate myself fully to serving the Korean economy."

Assemblyman Park Sunghoon of the People Power Party called on Shin to clarify suspicions regarding "dual academic status" linked to his transfer to Korea University. Shin graduated from high school in the United Kingdom in July 1978 and was admitted to Oxford University. However, after deferring his enrollment, he returned to Korea in September of the same year and transferred to Korea University, leading to questions about possible dual academic status.

Shin explained, "I graduated from high school in the U.K. in 1978 and returned to Korea to fulfill my military service. At the time, I was too young to be drafted, so I applied for a transfer to continue my studies." Regarding his transfer as a first-year student at Korea University, he added, "U.K. high school is a four-year program and university is three years, so it seems the process was handled in accordance with the British education system."

There was also criticism that Shin failed to report the loss of Korean nationality when his eldest daughter acquired British citizenship in 1999, and that in December 2023, he reported her move-in to his apartment in Gangnam-gu as a Korean national. Assemblyman Chun Haram of the Reform New Party presented a copy of the handwritten move-in report, stating, "False move-in reports can result in up to three years of imprisonment, which is a clear violation of the Resident Registration Act." Chun further emphasized the need to verify whether the failure to report loss of nationality and the false move-in report as a Korean national were intended to obtain benefits reserved for Koreans. Documents on the daughter's health insurance, immigration records, real estate, and housing applications, as requested by Representative Chun, are expected to be submitted by tomorrow, pending consent from the individual currently residing in the United States.

On the controversy regarding foreign currency assets, Shin said, "I have already disposed of a significant portion. All assets have been converted to won, and I will dispose of the remainder as well." Addressing suspicions of gap investment, Shin explained, "At the time, it was neither speculative nor intended for gap investment. My mother owned a home but was short of living expenses, so I purchased a house to support her financially. If my mother's place of residence is considered a form of gifting, I will confirm this with my appointed tax agent and take any necessary tax measures."

Shin stated, "I believe this is my last opportunity to devote myself to the Korean economy as Governor of the Bank of Korea, and I will work diligently for the Korean people." He added, "When I returned to Korea in 1978, it was to fulfill my military duty. At that time, I could have deferred or even been exempted from service, but I returned out of a sense of civic duty and completed my military service. I am not at all ashamed of that."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.