Choongsoo Kim: The challenges ahead for the Bank of Korea in 2010
Inaugural address by Mr Choongsoo Kim, Governor of the Bank of Korea, on the opening up of
a new chapter of the Bank of Korea commensurate with its role as the central bank of the chair
country of the G20, Seoul, 1 April 2010.
The following is an unofficial English translation.
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Dear members of the Bank of Korea,
Countries around the world are at this time putting every effort into overcoming the global
financial crisis. And in contrast to past cases, international policy coordination toward this
end has taken the form of practical actions rather than words. Even though the world is
shaking off the crisis, however, we know that it is impossible for the global economy to return
to its anterior state. But which way should the world now be heading? The world is now
seeking a new post-crisis economic paradigm. In this global economic environment, no one
can relax its vigilance for even one moment. We have experienced the stern reality that any
country can be dragged in an instant into the vortex of economic crisis. At this point in time, I
have been named Governor of the Bank of Korea, the central bank of our country. For an
economist, the honor of this appointment goes beyond anything words can possibly express.
At the same time, of course, I must confess that I feel the pressure of a very heavy
responsibility now weighing down on my shoulders.
Let me begin by taking this opportunity to bow my head in deep gratitude and tribute to my
forebears at the Bank of Korea, for their devoted dedication in establishing the Bank's
standing in a constant and righteous way, following several drastic changes, ever since the
Bank was founded 60 years ago. In particular, I would like to express my thanks to my
predecessor Governor Lee, Seong Tae, who has contributed so much to overcoming the
global financial crisis. I would like to ask Governor Lee for his unstinting guidance and
encouragement in the times ahead.
I have previously declared as my principle that I will contribute to upholding the authority of
the Bank of Korea. The independence of the central bank is legally guaranteed, and the
concepts of neutrality, autonomy and initiative define its very nature. These are sacred
values of the central bank, and unless they are upheld we can never say that our mandate
has been properly fulfilled. I am now proposing to establish the Bank's authority in enhancing
these values. We must, in this regard, work to make sure that the public pays close attention
to what the Bank says. And such authority is not bestowed from the outside, but must be built
up from within ourselves. It can be established only when we cultivate our abilities. Our
words and our will alone do not suffice. It also goes without saying that credibility must be
underpinned by true ability.
Dear friends and colleagues,
The crisis that the world economy is now undergoing is an abnormal situation. What is clear,
however, is that overcoming it does not mean a return to the pre-crisis situation. The
economy has a tendency to change dynamically, a characteristic that has been further
reinforced by the modern trends of rapid globalization and informatization. There is a
likelihood of risk and uncertainty growing greater the more dynamic the economy is, and at
the same time spreading rapidly the more informatized it is. As the world moves closer to
forming a single economy, we have learned the hard way that sectors have become much
more inter-connected. We must redouble our efforts to adapt to changes, so as not to
become estranged or left behind in this process of global transformation. Efforts for policy
adjustment between the United States and China to resolve the global imbalances,
overcoming the challenges to euro system stability posed by the fiscal crises in some
eurozone countries, the global wealth shift following the emergence of the G20 and the rapid
expansion of Asian economic powers, fixing the financial system so as to rein in economic
risk and uncertainty, and redefining the roles of the international financial institutions: those
are just a few of the core elements that will shape our drive to establish a new global
economic framework.
An appropriate solution to our country's domestic problems can only be derived from the
understanding of all these challenges. Regrettably, however, we must bear in mind that there
is no textbook solution to guide us in the future. We will be unable to find the correct
prescription through approaches based upon our previous understandings of the economy.
The current state of affairs requires that we respond wisely by thinking deeply and mustering
all our wits to grasp the natures of the problems. International policy coordination may, on the
one hand, currently be emphasized because the effects of particular policies adopted by any
one country are limited in an open economy. This means that individual countries must
cooperate with one another to maximize their policies' impacts. On the other hand, the
current international policy cooperation may also have the positive result of reducing the
market uncertainties arising from the various policy directions different countries suggest.
The characteristics of the Bank of Korea stipulated in the Bank of Korea Act, such as
harmonization with government policy, public nature and transparency, may be interpreted
as having been defined in this way so as to reduce uncertainties to the maximum extent
possible by mitigating asymmetries of information.
Friends and colleagues,
We are living in an age of mounting economic uncertainty at home and abroad. A new
international financial architecture is in the course of formation, and the Bank of Korea must
very actively seek out its appropriate role as the central bank of the chair country of the G20.
Our Bank therefore has much work to do, and we will have to concentrate particularly on
solving the following tasks.
First of all, given the risks uncertainty poses to price stability, the Bank of Korea must devote
even greater efforts to achieving its mandate of price stability. In essence, economic policy is
composed of two pillars: the goals of full employment and of price stability. We must bear in
mind that, just as an economy without job growth will be unsustainable, so for an economy
without price stability will be prone to crises. Price stability is not only necessary to steer the
macroeconomy on a stable course, but is also an indispensable element for preventing
worsening of the distribution structure, and particularly for stabilizing the livelihoods of the
people.
Secondly, in the course of overcoming the global financial crisis, it has now become
generally acknowledged that the central bank's role in preserving financial stability is more
important than ever before. Of course, the definition of the role of each individual central
bank reflects the characteristics of its own nation's economy, which is influenced by historical
changes in the particular local environment. In our current global economic climate, however,
central banks are shifting towards going beyond the unique circumstances of their own
individual countries, and dealing collectively with common issues in the world economy
through policy coordination. The latest trend is toward a reinforcement of the financial
stability role of the central bank. And we, too, at the Bank of Korea, must meet and overhaul
various relevant institutions and practices, a task that is emerging as an important priority for
our national economy. Dedicated efforts should also be devoted toward cooperating closely
with the government and the supervisory authorities, for the sake of financial stability.
Thirdly, the Bank must endeavor to communicate seamlessly with the markets. In a democratic
society, the best of intentions and their outcomes vary more often than not. Further, a
wellintended policy may even bring about bad results. This is because, at times, the thoughts
and actions of economic agents are dictated merely by what is perceived to be real, rather
than by reality itself. Accordingly, we must always seek to appropriately bridge the gap
between reality and their perception of it. This is exactly why the importance of
communication is being emphasized. The central bank also performs the role of providing
important information that the markets need, including of course information on monetary
policy. Such information must be provided in a timely manner, and the greatest care must be
taken so as not to lead economic agents into confusion.
Fourthly, the Bank of Korea's capacity as a central bank to carry out research and study
must be heightened even further. The Bank's analytical capabilities should be enhanced, so
that its research output is actively sought after in the formulation of not just our own monetary
policy, but also the government's policies. We must bear in mind that the quality of a
country's policy-making depends to a large degree upon the stature of its central bank as a
storehouse of reliable information.
My dear colleagues,
Korea is recognized as one of the economies that have been the fastest to recover from the
global financial crisis among OECD member countries. Let me emphasize once again that
the Bank of Korea has made a great contribution to this achievement. Although we are lucky
to have staged such a rapid recovery, I would like to state clearly that we cannot as a result
become self-complacent. We should never forget that the global financial crisis had the
greatest impact, among all nations, on Korea. We should also endeavor to fully fathom why
Korea was hit harder by the crisis than other economies were, and showed negative growth
of over 20%, on an annualized rate, just after the crisis erupted in the fourth quarter of 2008.
What are the weak points of our economy? What do we know about them? Other OECD
countries are busy analyzing the damages inflicted on their growth potentials. What about
our own growth potential - is it sound? Although crises are invariably accompanied by pain,
we can also learn a lesson from a crisis. As the saying goes, "Don't waste a crisis". I would
deem crises as providing their sufferers with very valuable lessons. From a historical
perspective we should never overlook the fact that crises have a tendency to recur. If we go
back to "business as usual", we cannot possibly say that we have learned from the crisis. Did
our way of thinking change? Did our way of conduct change? Did our organization change in
response to the global financial crisis?
I believe that public expectations of the central bank and the importance of its role are
greater now than ever before. An exit strategy refers to the unwinding of the various
emergency measures that were introduced in the process of overcoming the financial crisis.
We need to marshal our combined wisdom to seek the most appropriate ways to exit, while
paying attention to changes in the economic environment both at home and abroad. We
must be able to chart a course for the future and take carefully thought-out measures that the
markets will voluntarily comply with. On the other hand, thinking on the new roles of the
central bank must also take on a new dimension. These ponderings should be raised to a
level at which they ultimately contribute to the development of our nation. It is true that we
have as rivals our peers within the organization and elsewhere in the domestic sphere. But at
the same time, we must regard the central bankers of other nations and entities, such as the
US, the EU, Japan, China and the UK, as our true competitors. If we fall behind them in
terms of contributions made to national development, we cannot say that we are fulfilling our
responsibilities. This should be the yardstick for judging the international competitiveness of
a central bank. Please always bear in mind that your competing counterparts are in the
central bank of other nations. It goes without saying that we must also step up our efforts to
enhance cooperation with them. I expect such efforts to shift our thinking and behavior from
being retrospective and inward-looking to a future-oriented and global-looking one.
As Governor of the Bank of Korea, I have unbounded confidence in your ability and highly
value your pride in the Bank. It is inconceivable that the Bank, made up of the most talented
people in Korea, cannot come up with solutions to Korea's economic issues. I have held
various posts before coming here. I think all of them will together serve as a cornerstone for
me to fulfill my responsibilities as Governor of the Bank of Korea. At this difficult time, all of
us working for the central bank must rethink the mission for our time. In the global age in
which economic borders are disappearing, we must boldly break down barriers that have
limited our scope for thinking and behavior. Let us not be entrapped by outdated ideologies
or theories but gather our wits for us to overcome new challenges with courage and wisdom.
Of course, we need to hold ourselves to stricter standards in order to exercise such
leadership. No change enforced by others can ever be effective, but the initiative for the
change needs to come from within. Nowadays "national dignity" is at the center of public
concerns. In order to elevate our nation's dignity, a shift in the values of all members of our
society is required. The leadership of our society, in particular, is expected to be bound by
lofty moral obligations, such as "noblesse oblige", and businesses are required to carry out
faithfully their corporate social responsibilities. If we succeed in elevating the authority of the
Bank both nationally and internationally, that will be a way to contribute greatly to elevating
the dignity of the entire nation. Let us join hands to do our best and move forward with pride
in being members of the central bank of the G20 chair country. May we together resolve to
open a glorious new chapter in our history as the central bank of Korea in this year that sees
the 60th anniversary of its foundation. It may still be recognized in years yet to come as a
central bank that paved the way for the long-term development of the nation.
Thank you.