Chang Yong Rhee: Speech - 74th Anniversary of the Bank of Korea
Speech by Mr Chang Yong Rhee, Governor of the Bank of Korea, to commemorate the
74th Anniversary of the Bank of Korea, Seoul, 12 June 2024.
* * *
I would like to thank Byungkuk Kim, Yeonkyo Choi and Youngrae Kim for their help in
preparing this speech. * This is an unofficial translation of the original speech released
on 12 June 2024.
Dear fellow Bank of Korea colleagues,
Today marks the 74th anniversary of the establishment of the Bank of Korea. I wish to
express my sincere gratitude to our predecessors who have led us to where we are
today and to the esteemed members of the Monetary Policy Board who are always
striving to safeguard our national economy. I would also like to thank all our dedicated
staff for their hard work in their respective roles during these challenging times.
Additionally, I extend my appreciation to everyone who supports and encourages us,
particularly the families of our staff.
Today is more meaningful to me personally because it marks the first anniversary of the
second half of my tenure, two years after I joined the Bank. Rather than looking back
over the past two years, I would like to discuss the road ahead. The challenges we face
now are critical, and how we handle them will influence how our past efforts are judged.
Turning first to the monetary policy environment, I am relieved to see signs that our
economy has been recovering faster than previously expected, as GDP growth in the
last quarter exceeded expectations. Behind these growth indicators, however, there is a
clear difference in the pace of recovery between exports and domestic demand, and
even within the domestic sector, the perceived recovery varies significantly across
segments. While inflation continues to decline, upside risks have increased due to
stronger-than-expected growth and higher exchange rate volatility due to uncertainties
in major countries' monetary policies, along with persistent geopolitical risks.
I understand that many people are still suffering from high inflation and high interest
rates. However, unless inflation is firmly stabilized, the vulnerable will face even greater
difficulties due to decreasing real incomes and soaring living costs. Moreover, if a
premature pivot to a dovish stance leads back to unstable inflation and necessitates
another rate hike, the policy cost at that time will be much higher. Therefore, we need to
remain patient and maintain our current tight monetary stance until we are confident
that inflation will converge on the target level.
Of course, if we delay the policy shift for too long, it could weaken the recovery of
domestic demand and cause market unrest driven by factors such as a continued rise
in loan delinquency rates. On the other hand, if we shift the policy stance too early, the
slowdown in inflation will decelerate, exchange rate volatility will increase, and the
growth in household debt will accelerate. As we enter the final stretch of the fight
against inflation, we need to make delicate and balanced judgments that take these
trade-offs into account. As highlighted in a recent blog post by the Bank of Korea's
Monetary Policy Department, it is time to recall the principle of, "festina lente," which
means, "make haste slowly," a maxim first and foremost advocated by Roman Emperor
Augustus in policymaking (Park & Sung, 2024).
The rough waves of steep inflation and the big rate hikes seem to have somewhat
subsided. However, we are now facing yet another challenging period that requires us
to navigate with even greater precision to avoid any hidden rocks lurking beneath the
surface. It is at times like this that the outcomes of policy operations tend to differ
country by country, clearly revealing the true capacity of each central bank. Therefore,
we should work to enhance the accuracy of our economic forecasts with a modest
attitude and carry out policy operations with more calibration, while comprehensively
monitoring risks across various scenarios.
In addition to successfully conducting monetary policy, the Bank of Korea has many
projects to complete going forward. First, as planned, from August we will publish our
economic forecasts more frequently, on a quarterly basis instead of twice a year as at
present. This will be a chance to improve the accuracy of our forecasts and to enhance
communication with market participants. Second, regarding the disclosure of the views
of the Monetary Policy Board members concerning the outlook for the policy rate over
the next three months, we will review the effectiveness, as well as the pros and cons, of
this approach and mull over ways to improve it with the MPB members. Third, the CD
rate is still commonly used in practice, even though it is no longer representative as a
benchmark interest rate due to its significant decline in trading volume in the short-term
money market. By encouraging financial product traders to use the risk-free reference
rate (KOFR), which is calculated based on actual transactions, as the benchmark
instead of the CD rate, we aim to enhance the effectiveness of the transmission
channels of monetary policy and contribute to the facilitation of the related derivatives
market (Financial Services Commission, 2024). Fourth, after the SVB failure, we have
decided to pursue plans to expand the range of eligible collateral for Bank of Korea
loans to include loans receivable in order to reinforce liquidity backstops (Bank of
Korea, 2023a). We should continue our efforts to establish an institutional infrastructure
that ensures a systematic and predictable liquidity support system for both banks and
non-bank depository institutions. If necessary, we will also consider revising the Bank of
Korea Act in consultation with relevant agencies.
We also need to be proactive in responding to the accelerating digital transformation.
First, we will carry out a CBDC pilot test to establish a new financial infrastructure for
the future where various private digital currencies, including a wholesale CBDC and
tokenized deposits based on it, can be issued and distributed (Bank of Korea, 2023b).
In addition, the Bank of Korea will actively participate in Project Agorá, a global financial
infrastructure research project jointly launched by the BIS and seven leading central
banks (Bank for International Settlements, BIS, 2024). As a non-reserve currency
nation, this will be a great opportunity for Korea to participate from the outset in setting
new standards for cross-border payment and settlement systems, positioning ourselves
as an early rule-setter.
Also, public and financial institutions have faced difficulties in utilizing new technologies,
such as cloud services and AI, due to the network separation between their intranet and
the internet. Cooperating with other related institutions, such as the National
Intelligence Service and the Presidential Committee on the Digital Platform
Government, the Bank of Korea will be the first organization to take part in a pilot
program to improve network security protocols in the public sector. I hope this initiative
will enable our staff to work anytime and anywhere they want, thereby increasing IT
efficiency and work productivity at the Bank of Korea, while also raising awareness of
the importance of cybersecurity.
Dear fellow Bank of Korea colleagues,
When we look further ahead, what we need to do doesn't stop here. Facing numerous
structural problems that have accumulated and deepened over time, such as a low birth
rate & an aging population, regional imbalances & overconcentration in the capital
region, pension depletion & old-age poverty, education issues, income and asset
inequality, and dualism in the labor market, we should not limit our research scope to
solely monetary policy.
Let's say we successfully win the fight against inflation. Even so, high levels of prices
will still remain as a burden on the cost of living, and this cannot be managed solely
through monetary policy. In order to reduce Korea's high costs for essentials compared
to major economies, we need to ponder more foundational solutions, such as
diversifying supply channels and reforming the distribution system (Im et al., 2024). The
low birth rate & an aging population, through the spiral of regional imbalances &
overconcentration in the capital, have been hampering Korea's growth potential for a
long time (Chung et al., 2023; Hwang et al., 2023). We urgently need to find a way to
break this vicious cycle. The high level of household debt also needs to be controlled so
it doesn't hinder financial stabilization. Recently, the debt ratio decreased due to the
upward revision of nominal GDP after the national account base year was changed. It
remains unchanged, however, that the household debt issue is still a threat to the
Korean economy, so we must continue working hard to stabilize it downward (Lee &
Kang, 2023).
We cannot expect sustainable growth without addressing these structural problems, as
we will face a huge social shift in the light of climate change and AI innovations. This
explains why the Bank of Korea needs to become a top-tier think tank in Korea by
advocating for structural reform and working closely with the government and related
institutions, not only just conducting monetary policy.
Various interest groups may create some noise as change is brought to a deep-rooted
structure. Indeed, some might be skeptical of or criticize the Bank of Korea, which has
no legal authority to do so, for dealing with sensitive social issues. However, because
the Bank of Korea is free from those interests and has no legal authority, it can analyze
the current status from a more neutral perspective and propose solutions from the
longterm view. With a responsibility to provide a blueprint for economic growth, we must
continue playing our role in offering alternatives for structural reform.
However, even our policy proposals will be nothing but empty echoes if they are not
backed by expertise. For our policy messages to resonate and gain consensus, the
quality of our research should gain trust from the outside the bank. This trust can only
be earned through our continuous efforts to enhance our expertise and capabilities.
Dear fellow members of the BOK family,
We have been driving various changes, including new management and personnel
measures, to meet the people's growing expectations of the central bank and to foster a
sound organizational culture. I believe we are seeing some positive results both in and
out of our Bank. Internally, there has been more active information sharing and debate
among our staff, while externally our policy proposals are drawing significant social
response. Our policy communication through various channels, including blogs and
social media, has also attracted attention.
Now our focus should be put on developing this momentum of change even further so
that it becomes deeply rooted in our organizational culture. This can be facilitated by
establishing a horizontal organization based on a shared consensus for change, and
participating voluntarily out of a sense of ownership. While the organization can chart
the course for the great ship Bank of Korea, it is you who hold the helm and steer the
path. We must create a culture where people feel free to bring ideas from the bottom up
and implement their ideas through cross-functional collaboration and task forces,
instead of being told what to do. Individual outcomes earned through this process
should be freely made public and recognized as one's own achievement. The "smart
maverick," recently proposed in a report by our Economic Research Institute as the key
driver of innovation in our economy, is someone we also need at our Bank (Lee et al.,
2024). I hope our staff will from time to time think out of the box and actively propose
ideas just like a "smart maverick" would, taking the initiative in our innovation efforts. I
look forward to seeing such a culture established soon. I also ask you to keep moving
forward with strong faith in each other, so that the series of measures we have pursued
will yield the hoped-for results.
Dear fellow Bank of Korea colleagues,
On my office desk, there is a plaque with a quote from former U.S. President Ronald
Reagan that says, "There is no limit to what a man can do or where he can go if he
doesn't mind who gets the credit." The capabilities of the Bank of Korea will double if we
remove the barriers between departments and work together with a mindset that
everyone shares the credit, rather than arguing over who will get the reward. Similarly,
we could do more if we weren't so worried about being assigned responsibility when
things go wrong. If we avoid controversy and blame out of fear, we'll always stay in the
same place, and progressive change will be elusive. A broken clock that has stopped
can still be right twice a day, but we cannot comfort ourselves by calling it reliable.
It has been my ambition since I took office to transform the Bank of Korea from a
"temple-like Bank of Korea" to a "vibrant Bank of Korea," and I believe that we are
moving forward together along that path. Change, and the road less traveled, is not
always comfortable, and there will be voices that say we are on the wrong path.
However, as we embark along this new path, we must keep in mind that it is our choice
to move forward without hesitation, or to retrace our steps backward into the past. The
Bank of Korea should strengthen its role as a producer of knowledge at the frontiers of
each field, not just a consumer or intermediary of knowledge, and the pain and
controversy that accompany this process should be overcome by our capabilities.
As we celebrate our 74th anniversary, I would like to express my appreciation once
again to all of you for your hard work. The Bank has been able to achieve significant
results in a difficult environment largely thanks to the dedication of our staff, who have
done their best to fulfil their responsibilities even in less visible areas like customer
service, facilities operations, cash processing, security management, and business
support. I would also like to extend my gratitude to the janitorial staff who strive to
maintain a clean working environment, and to the daycare teachers who provide a
comfortable care environment for our employees' children, and to the healthcare
workers who genuinely take care of our employees' health. I would also like to express
my gratitude and support to our employees who serve as ambassadors of the Bank in
regional headquarters and in other countries. I wish all of you and your families the best
of health and happiness.
Thank you.
Bank for International Settlements (BIS) (2024), "Project Agora: Central Banks and
Banking Sector Embark on Major Project to Explore Tokenization of Cross-Border
Payments", Press Release.
Bank of Korea (2023a), "The Restructuring of the Bank of Korea's Lending Facilities",
Press Release (in Korean).
____________ (2023b), "BOK, FSC, and FSS, in Cooperation with the BIS, Have
Launched a Project to Explore a Future Monetary System for Korea", Press Release.
Chung, M., Kim, U., Lee, H., Hong, S., Lee, D. (2023), "Regional Migration and
Economy", BOK Issue Note No.2023-29.
Financial Services Commission (2024), "Financial Services Commission & Bank of
Korea Held the 3rd Meeting on Benchmark and Short-term Money Market - Organizing
WG on KOFR", Press Release (in Korean).Hwang, I., Nam, Y., Sung, W., Shim, S.,
Yeom, J., Lee, B., Lee, H., Chung, J., Cho, T., Choi, Y., Hwang, S., Son, M. (2023),
"Lowest-low Fertility and Super-aged Society: Causes and Impacts of the Extreme
Population Structure, and Policy Options", Korea Economic Outlook: November 2023,
Bank of Korea.
Im, W., Lee, D., Lee, Y., Park, C. (2024), "Price Levels in Korea: Insights from a
CrossCountry Comparison", BOK Issue Note No. 2024-14 (in Korean).
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Growth: Review of Korean Firms' Innovation Performance", Korea Economic Outlook:
May 2024, Bank of Korea.
Lee, K., Kang, H. (2023), "Causes and Consequences of High Household
Indebtedness: A Narrative Approach", BOK Issue Note No. 2023-22 (in Korean).Park,
Y., Sung, H. (2024), "Major Risks of Monetary Policy Operations in the Future", Bank of
Korea Blog Post, May 29, 2024 (in Korean).