Juyeol Lee: Opening address - BOK-BIS Joint Conference
Opening address by Mr Juyeol Lee, Governor of the Bank of Korea, at the BOK-BIS Joint
Conference, Seoul, 19 November 2018.
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Ladies and gentlemen,
It is a great pleasure for me to welcome all of you today to this BOK-BIS Joint Conference. I
would like to express my sincere gratitude to our keynote speaker, Dr. Emanuel Mönch, Head of
Research at the Deutsche Bundesbank, and also to BIS General Manager Agustin Carstens and
Head of Research Hyun Song Shin, who will join us tomorrow. Let me also thank all of our
distinguished moderators, speakers and discussants.
In 2016, the BIS Asian Office suggested Asia-Pacific fixed income markets as a research theme,
in recognition of the need to assess the role of such markets and their future development. The
BIS Asian Consultative Council(ACC), comprising the central banks in the Asia-Pacific region,
also judged this work as timely and has been actively supporting it through the participation of its
researchers. After an interim workshop held in Hong Kong in September last year, I am pleased
that we have reached the final stage where we can share and discuss the results with each
other at today's conference.
As you probably know, prior to the 1997 Asian financial crisis, fixed income markets in the
AsiaPacific region were underdeveloped while financial intermediation depended greatly upon
shortterm bank borrowings. In such a case, domestic or external shocks that hinder the smooth
rollover of loans can lead to a major crisis - something we learned the hard way. Through this
lesson, countries in the region have made great efforts to foster sound financial markets that can
support stable economic growth. As a result, our region's fixed income markets have developed
remarkably: they are now bigger, more liquid, and more open.
This fixed income market development in the region has brought about two positive changes.
First, it has contributed significantly to the successful transition to interest rate-based monetary
policy frameworks. Fixed income markets are one of the most important channels through which
the effects of policy rate adjustments are transmitted to the real economy. Central banks are now
able to assess market expectations more quickly by analyzing bond yields for different maturities,
making their policies more effective.
Second, with greater bond investment from abroad, foreign capital is flowing in more diverse
ways. It used to come in mostly through short-term bank borrowings or equity investment, but
now a considerable portion of capital inflows is invested in local currency-denominated
longerterm bonds - this change has made foreign capital flows much more stable.
On the other hand, the development of fixed income markets in the region has also brought new
difficulties. First, as foreign investors hold a greater share of bonds in the region, bond yields are
greatly affected not only by domestic economic developments or monetary policy, but also by
global economic conditions. In addition, there are increased concerns about financial and foreign
exchange market unrest in the event of a sudden reversal of capital inflows to the regional bond
markets. There have recently been dramatic changes in global economic environment, including
the continuing monetary policy normalization by the U.S. Federal Reserve and the rising trade
tensions between the U.S. and China. In fact, some emerging market economies with weaker
fundamentals have experienced large-scale capital outflows, resulting in more volatile stock
prices, exchange rates and interest rates.
So far, we have seen that the development of the fixed income market in the Asia-Pacific region
has greatly contributed to better market functioning and a better policy environment, while
creating no small difficulties. Against this backdrop, allow me to suggest some policy tasks that
countries in the region must first pursue to enhance financial and economic stability.
To begin with, we must enhance the overall resilience of the regional economy so that sudden
changes in capital flows triggered by external shocks do not lead to systemic risk. To this end,
we must reinforce our capacities and policy space to properly respond to external risks. This
may be done by improving current account balances, holding sufficient foreign reserves, and
enhancing exchange rate flexibility.
Next, we must continue our international cooperation to reinforce financial safety nets.
AsiaPacific countries have striven to establish regional financial safety nets and develop fixed income
markets through the Chiang Mai Initiative Multilateralization(CMIM), the Asian Bond Markets
Initiative(ABMI), and the Asian Bond Fund(ABF). We also need to continuously expand our
cooperation not only within the region but also with international organizations such as the IMF
and BIS to strengthen global financial safety nets.
Last but not least, we have to continue our policy efforts to strengthen fixed income market
infrastructure and functioning, such as by seeking diverse investors, making corporate bond
markets more vibrant, and improving the processes for bond issuance and trading. I believe that
these efforts would expand both the depth and liquidity, and therefore the stability of our region's
financial markets.
Ladies and Gentlemen!
The research papers to be presented at today's conference reflect the serious thoughts and
ideas of expert researchers on major issues. These include not only the development of fixed
income markets in the Asia-Pacific region, but also the impacts of changing global risk
preferences on emerging market capital flows, the determinants of fixed income market yields,
and the relationship between the term structure of interest rates and macroeconomic variables.
I hope that the research presented at today's conference will spark vigorous debate and allow the
sharing of diverse opinions that will help solve the financial and economic problems facing the
Asia-Pacific region.
Thank you.