Bank of Korea
Speech Commemorating
the Bank's 70th Anniversary
2020. 6. 12.
Juyeol Lee
Governor
Bank of Korea
(This is an unofficial translation prepared by the Bank's staffs based
on original speech released on June 12, 2020.)
Today is the 70th anniversary of the Bank of Korea's
establishment. I wish to express my sincere gratitude to our
predecessors who devoted themselves to the development of the
Bank of Korea and our economy, and to the many people who
have supported and encouraged the Bank. I would like to say in
addition how much I appreciate the efforts of all members of our
staff, who are unwaveringly fulfilling the duties entrusted to them in
their positions at a time when our working environment has been
dramatically altered by the unprecedented coronavirus pandemic.
Looking back, the Bank of Korea has faithfully carried out its
role as a central bank since its foundation in 1950, while making
all-out efforts to meet the demands of the times. In the initial stage
of economic development, our Bank spared no support as Korea
achieved high-speed industrialization-led growth that was the wonder
of the world. After experiencing high rates of inflation due to two oil
shocks, our Bank devoted its attention to establishing a foundation
for price stability. Since the global financial crisis, we have actively
carried out our financial stability mandate. All of these efforts have
not only provided stepping stones for economic development and
stability, but have also laid a foundation for our standing as a
central bank to be firmly established.
Commemorating our anniversary today, I see no lack of
achievements to celebrate from the past 70 years. But as our
economy experiences severe hardship due to the COVID-19
pandemic, now is not the time to congratulate ourselves.
The world is now faced with the defining health crisis of our
time. We are in an unprecedented situation in which economic
activities have contracted rapidly in many countries due to the social
distancing and lockdown measures put in place to contain the
spread of the virus. Major economies are in recession amid
increased volatility in global financial markets and shrinking global
trade. The Korean economy is forecast to record negative growth in
the first half of this year with the sharp drops in consumption and
exports.
The Bank of Korea has taken drastic and unprecedented
measures to prevent this pandemic from causing permanent damage
to the Korean economy. We lowered the Base Rate to a historic
low of 0.5%. We significantly expanded our supply of dollar and
won liquidity through FX loans using the proceeds of a currency
swap arrangement with the Fed and unlimited RP purchases. We
also increased loans through the Bank Intermediated Lending
Support Facility for SMEs and small businesses, and to stabilize the
credit market we decided to make loans to a non-bank financial
institution and an SPV that purchases corporate bonds and
commercial paper.
Fortunately, our financial markets have stabilized thanks to active
responses by the government and the Bank of Korea. However,
many hurdles are expected on the road to a full recovery from the
real economic crisis created by the COVID-19 pandemic. Among
other things, the timing and speed of the recovery will greatly
depend on developments of the pandemic going forward. Worsening
employment conditions and declining debt repayment capacities in
the private sector could also constrain a fledgling recovery.
What is more, the outbreak of the coronavirus disease will cause
no small changes to our economic structure. Affected by the current
crisis, deglobalization will begin in earnest, and it could then
weaken global supply chains and greatly shake the order of free
trade. The spread of untact economic activities will expedite the
digitalization of society as a whole, accelerating the Fourth Industrial
Revolution and intensifying global competition. In this process, the
imbalances that have accumulated in each sector of the economy,
such as labor market dualism, income polarization and debt buildup,
could become even worse.
Considering this changing economic environment, we must waste
no time in gearing ourselves up for the post-corona era, while doing
everything we can to overcome the crisis. Unless we move beyond
the past paradigm of growth relying on accumulation of physical
capital, we will not be able to escape low growth even after
overcoming the crisis. The best way to prepare for the new era is
to establish a productivity-oriented growth framework based on
knowledge and technology, by making sure that autonomy and
creativity in the private sector can be fully realized.
Dear fellow members of the Bank of Korea!
The economic crisis triggered by the coronavirus pandemic and
the ensuing changes to our economic environment I mentioned
earlier are presenting more serious challenges than ever before to
the central bank as well.
First of all, we must faithfully fulfill our role as the central bank
to surmount the crisis. Monetary policy should remain
accommodative until the economy is expected to emerge from the
coronavirus-triggered crisis and show a trend of recovery. To
maintain financial market stability and smooth credit flows, the Bank
of Korea should appropriately deploy policy tools apart from interest
rates, if necessary. In addition, we need to closely cooperate with
the government to ensure that policy effects are maximized.
While maintaining an accommodative monetary policy stance to
overcome the crisis, we should not let our guard down against the
possibility of financial imbalances building up over the medium- and
long-term horizon. This is because we have seen recurring cases in
which crises were caused by the accumulation of financial
imbalances such as excessive credit expansions and asset price
bubbles. While overcoming the current crisis with preemptive
responses, we also should devise plans in advance to unwind these
unprecedented measures once the crisis subsides.
The COVID-19 crisis could raise questions about whether
inflation targeting is suitable to the current situation. Even before the
crisis, inflation had been running below the target level for a
considerable period. In the post-corona era, low inflation could
continue for a long time as the incentive for precautionary saving
increases, demand slows from accumulation of debt, and digital
transformation accelerates. We will need to carry out research on
how to improve the monetary policy regime, while closely monitoring
the discussions among major central banks.
As we can see from the controversy that started last year
surrounding Facebook Libra, digital transformation could move
beyond the private sector to the central bank's payment and
settlement system. As an institution responsible for ensuring the
safety and efficiency of the payment and settlement system, the
central bank needs to proactively respond to these changes. The
currently ongoing research and development on central bank digital
currency must be carried out as planned. It would also be
noteworthy to see how a growing number of central banks are
setting up fast payment systems that they directly establish and
operate under their real-time gross settlement systems in order to
reduce settlement risk.
Lastly, as central banks respond to the recent crisis, there has
been an ongoing debate over the extent to which their role should
be expanded. Although the currency issuing authority has been
granted to the central bank by the public, it is a fundamental
principle that the central bank should execute it prudently, given that
the authority ultimately belongs to the public. However, during the
recent crisis, there have also been growing voices calling for the
central bank to take bold actions as a "crisis fighter." Going forward,
we will need to think deeply about the extent to which we should
accept calls to play a quasi-fiscal role and how we can justify that
role, as well as how we can establish a principle for intervening in
markets as a central bank, thereby bringing about social consensus.
Dear members of the Bank of Korea!
Commemorating the 70th anniversary of the founding of the
Bank, we need to once again renew our mission and rekindle our
passion for taking the lead in stabilizing and developing our national
economy.
A couple of days ago, we unveiled 「BOK 2030」, our medium-
and long-term development strategy set up to ensure that we
respond actively to the rapidly changing economic paradigm and to
define our new role accordingly, with a vision looking into the next
decade. It is intended to foster individual members of the Bank to
become top experts in their respective fields and enhance the
organization's flexibility and synergy, thereby maximizing the Bank's
policy capacity.
Above all, we will need to upgrade our capacity for research,
which is one of our key functions, to deal with the increasingly
complicated financial and economic issues we face. We must also
fundamentally change the way we work, by introducing the latest
digital technology, innovating with respect to our administrative and
personnel management systems, and redefining our culture, so that
every employee will be able to grow together with the organization.
「BOK 2030」 is very meaningful in that it reflects views collected
from our own employees as well as advice from outside the
organization, and in that young members and future leaders of our
Bank participated actively in the process. Action plans will begin to
be implemented step by step from the latter half of this year. All
members of the Bank of Korea, including myself, will need to join in
these efforts, so that this strategy is not just an empty slogan but
brings about actual change and innovation to our Bank.
Our economy is now facing a critical situation, which is why we
all need to have a clear sense of duty. We must remain
cool-headed in every judgment we make, and do the best we can
in our jobs, so that the decisions we make today will later be
regarded as successful in helping overcome this crisis and in
preparing for the post-corona era.
I would like to thank you once again for your hard work, and I
wish you and your family good health and happiness.
Thank you.
June 12, 2020
Governor Juyeol Lee