New Year Speech
January 4, 2021
Juyeol Lee
ᄐᄐ
Governor
ᄐᄐ
Bank of Korea
(This is an unofficial translation prepared by the
Bank's staffs based on original speech released on
December 31, 2020.)
Dear fellow members of the Bank of Korea!
Today we start our first working day of 2021. I would like to begin by expressing
my sincere gratitude to you all for so faithfully carrying out your duties throughout
the past year under the new environment brought by COVID-19, including
contactless working.
Our economy faced many difficulties during 2020, as shocks from COVID-19
continued throughout the whole year. The global economy went through the worst
recession since World War II as a result of frequent lockdown measures in many
countries and reduced trade. Financial markets at home and abroad were highly
turbulent. The Korean economy is estimated to have represented negative growth
for the first time since the currency crisis. Labor market conditions also worsened
severely, especially in the contact-based service industries and for temporary and
daily employees. Inflation remained low in the 0 percent range, held down by weak
demand and the fall in international oil prices.
Against this backdrop, the Bank of Korea operated accommodative monetary
policy to calm the financial market unrest and prevent the real economy from
shrinking sharply. In addition to the large Base Rate cuts, we increased the supply of
Korean won and foreign currency liquidity, for instance by purchasing Treasury
bonds and signing a currency swap arrangement with the US Federal Reserve. We
greatly increased the volume of our Bank Intermediated Lending Support Facility,
designed to support small and medium-sized enterprises and small business
owners, and took unprecedented measures including financing an SPV that
purchases corporate bonds and commercial paper.
Fortunately, the active measures taken by the government and the Bank of Korea
helped the financial market to recover its stability quickly, and the real economy
showed signs of improvement in the second half of 2020.
This year, it is expected that the global economy and trade will improve
gradually, and the Korean economy will recover modestly. However, looking at
internal and external conditions, there remain many obstacles for our economy to
overcome before fully entering the recovery phase. COVID-19 vaccination has
recently started in some countries, but the virus resurgence has not been contained,
and a new variant has emerged, making it difficult to predict when this pandemic
will come to an end. Expectations are rising for an easing of trade protectionism in
the run-up to the inauguration of the Biden Administration, but there is always the
possibility of "own-country-first" policies reemerging and intensifying trade
tensions.
Turning to the domestic front, our economy's structural weakness still poses a
concern. While the low fertility rate and population aging constrain our economic
vitality, discriminatory impacts from COVID-19 are aggravating the imbalances
between sectors and classes. If the economy takes a K-shaped recovery going
forward, small businesses centering on contact-based industries and people in the
low-income bracket are very likely to be marginalized continuously in the process.
The increase in the number of marginal businesses and the expansion of household
and corporate leverage could act to weaken economic agents' capacity to deal with
external shocks.
Under these circumstances with high economic uncertainties at home and
abroad, we should provide unwavering policy support for households and
companies so that they can overcome this crisis. While supporting the economic
recovery through expansionary macroeconomic policy, we will also need to
strengthen our targeted support for vulnerable groups severely affected by COVID-
19, so they can recover even a bit more quickly.
We must devote more efforts to preparing ourselves for the post-corona era as
well. Once the coronavirus crisis is over, it is expected that the transition to the eco-
friendly and digital economy will be accelerated even further. We will need to take
this structural transition as an opportunity to expand the dynamics for future
growth, and work to ensure we do not fall behind the global competition. We should
focus our energy on creating an environment in which the private sector can wield
its creativity and entrepreneurial spirit to the fullest extent, and more new
enterprises spring up to serve as an engine for job creation.
As for the unprecedented accommodative measures we have taken so far, we
must think in advance about how and when we will normalize, in careful
consideration of future developments of the pandemic, economic conditions, and the
effectiveness and possible negative side effects of the measures.
Dear members of the Bank of Korea!
Let me talk now about the main tasks that the Bank of Korea will need to focus
on this year.
The domestic economy is expected to show a modest recovery going forward,
but there is high uncertainty surrounding the future growth path and inflation is
forecast to stay below our inflation target for a considerable period. Therefore,
monetary policy will need to remain accommodative until the economy is projected
to maintain a stable recovery trend. However, we should pay more attention to
financial stability conditions as there are mounting concerns about a risk of buildup
of financial imbalances such as fund inflows to asset markets and private credit
growth.
The Bank of Korea should keep working to maintain financial and foreign
exchange market stability. We should carefully monitor developments in domestic
and global risk factors, including the possibility of a protraction of COVID-19 and
subsequent delay in economic recovery, and implement market stabilization
measures in a timely manner when necessary. We should also step up our
examination of potential risk factors regarding financial stability. While closely
monitoring and analyzing the buildup of household debt, the gap between the real
economy and asset price movements, and the deterioration of the debt-servicing
capacities of marginal firms and vulnerable households, we need to seek
countermeasures in close cooperation with the government when any considerable
changes are detected in the level of risk.
The payment and settlement system environment is changing rapidly, due for
instance to digital innovation and the growing entry of Big Tech. In response to these
changes in the environment, we need to make more efforts to secure the safety of the
payment and settlement systems, which have been within the inherently exclusive
remit of the central bank. On the issue of central bank digital currency (CBDC), we
need to establish a pilot system and carry out tests as planned in a virtual
environment, while actively reviewing ways to set up a fast payment system based
on the real-time gross settlement system (RTGS). At the same time, we need to
establish an institutional framework that more clearly defines our role and
responsibilities related to the payment and settlement systems.
Looking back, economic crises were followed by significant changes in the role of
the central bank. During the current coronavirus crisis, there have been growing
calls to include employment stability as one of the legal mandates of the Bank of
Korea. Considering that employment stability supports sustainable growth and
enhances quality of life of our citizens, the central bank should also take
employment conditions into account as an important factor when operating
monetary policy. However, having a number of possibly conflicting policy goals
could make it difficult to maintain consistency in monetary policy operations, and
therefore we will need to refer to research outcomes and past experiences at home
and abroad, while listening carefully to experts, to come up with an optimal solution
that fits the conditions we are facing.
Moreover, we need to seek ways to improve the monetary policy framework. It
is well-known that low interest rates and low inflation have been prolonged and the
relationship between growth and inflation has weakened since the global financial
crisis. In response to this changing environment, the Fed has recently changed its
monetary policy strategy, focusing more on employment stability. While Korea is
experiencing structural changes not unlike those in major countries, our situation
calls for more attention on financial stability. Therefore, we need to examine the
performance and limits of the current monetary policy framework, and review
whether there is a more effective way of operating it tailored to our circumstances.
Dear members of the Bank of Korea!
While we face growing difficulties in conducting policy amid rapid changes in
the economic environment, the expectations of the general public toward the central
bank have heightened. To meet these expectations and firmly establish our standing
as a credible central bank, it is all the more important that we achieve noticeable
performance in our duties and responsibilities. An organization can generate
outcomes only when an individual staff member fully exercises his or her expertise.
In particular, at times like these when there are high uncertainties, the abilities to
precisely analyze economic phenomena and make insightful forecasts are needed
more than ever before.
Moreover, in order for the Bank to continuously create value that contributes to
the Korean economy, it is fundamental that we have a healthy organizational culture
in place. For this, we will need to eliminate inefficiency from our operating practices
while achieving innovations across the entire management system, including
recruitment & transfer and evaluation & remuneration. We have recently completed
a third-party assessment of organizational health by listening to candid opinions
from the staff. We will accept the results of the assessment in their entirety and take
them as the starting point of our efforts to improve our organization. We will first
push forward with short-term tasks, while pooling all of our wisdom to set up
measures for restructuring the management system over the medium- to long-term
horizon.
My fellow members of the Bank of Korea!
Last year was a time in which we devoted strenuous efforts to respond to the
coronavirus crisis. This year will likely be another challenging year for our economy.
We should remain hopeful and confident, while staying vigilant and faithfully
fulfilling our roles and responsibilities.
As we greet this new year, I want to wish you all the very best of health and
good fortune.
Thank you.
January 4, 2021
Governor
Juyeol Lee