ben s bernanke : the policy response to the crisis in korea and other emerging market economies speech ( via video recording ) by mr ben s bernanke, chairman of the board of governors of the federal reserve system, at the bank of korea ’ s international conference “ the changing role of central banks ”, seoul, 30 may 2010. * * * it is a pleasure to be able to participate in this conference on the occasion of the 60th anniversary of the bank of korea. i would especially like to congratulate governor kim on his recent appointment. over the years, the bank of korea has made an important contribution to the impressive economic performance of south korea, a performance that includes a more than 10 - fold increase in the country ’ s real gross domestic product ( gdp ) per person over the past four decades. the global economic and financial crisis caused hardship around the world and tested central banks in both advanced and emerging market economies. like their counterparts in the advanced economies, central banks in several key emerging market countries responded to the crisis by sharply lowering policy rates and by undertaking a variety of unconventional policy measures to support their economies. the bank of korea was among the first of the emerging market central banks to respond by reducing its policy rate by a cumulative 325 basis points between october 2008 and february 2009. it also took effective steps to increase the liquidity available to the korean financial system, for example, by expanding the set of counterparties for repurchase transactions and broadening the pool of assets eligible as collateral. to help the banking system remain stable and able to continue lending to creditworthy borrowers, the bank of korea also helped set up a bank recapitalization fund. korean banks, like those in a number of countries around the world, experienced shortages of dollar liquidity during the crisis. to alleviate these shortages, the bank of korea drew on its foreign exchange reserves. it also established a dollar liquidity swap line with the federal reserve in october 2008, which provided short - term dollar funding to the bank of korea that it, in turn, could lend to financial institutions when the operations of private dollar funding markets had become impaired. the bank of korea ’ s efforts were complemented by substantial fiscal stimulus put in place by the korean government. this suite of policy responses helped stabilize korean financial markets and promote a swift recovery of economic activity. the equity market bottomed in late 2008 and has since then retraced much of its losses. real gdp, which contracted at a remarkable 17

, and transparent will require extensive international cooperation. on a global level, the leadership of the group of twenty ( g - 20 ) – which korea is currently chairing – will be essential in ensuring that reforms are not only strong and effective but also consistent and coordinated across countries. two important features of the crisis were the increased use of unconventional policies and enhanced cooperation among central banks, including between the federal reserve and the bank of korea. yet another challenge for central banks will be to make good use of what we learned during the crisis – to determine whether and how the toolkit of central banks can be expanded, and to find ways to build on central bank cooperation during the crisis to develop stronger working relationships and collaboration in the future. taking such steps now will improve our ability to respond effectively to any future crisis. but even as central banks develop new tools to address new challenges, they must continue to place great weight on the factors that have been shown to enhance the credibility and effectiveness of monetary policy : central bank independence, accountability and transparency, and effective communication. together with strong financial reforms, monetary policy built on these principles will assist the recovery and promote future growth and stability. as emerging market economies become increasingly important in the global trading and financial systems, the world economy will depend even more on them to maintain strong domestic growth and economic and financial stability. thus, the improvements in emerging market policies and policy frameworks i have discussed today have ramifications beyond the emerging market economies themselves. emerging market nations also have a key role to play in the important efforts to reduce global imbalances in trade and capital flows. again, the g - 20 is in a position to lead. the fact that korea is chairing the g - 20 at this crucial time is a notable vote of confidence in korea and its institutions. we look forward to continuing our cooperation with korea as we tackle the global economic challenges before us and the ones yet to come. my best wishes for a productive conference and for the continued success of the bank of korea.