choongsoo kim : strengthening central bank cooperation closing dinner speech by dr choongsoo kim, governor of the bank of korea, at the bis bimonthly meetings, sydney, 24 february 2014. * * * thank you, christian, for a very kind introduction. i still vividly remember your office the first time we met in paris. i appreciated very much that you met me despite your busy schedule. i also envied you, as we koreans must take a more than 10 hour - flight to see and visit the chateau, but you french central bank people enjoy your lives working at the gorgeous chateau. governor glenn stevens of the reserve bank of australia, ladies and gentlemen joining us here today... it is a great honor and pleasure for me to stand before you all, in sydney, one of the most beautiful and great port cities in the world. first of all, i wish to express my sincere appreciation to governor stevens, for hosting this event with the warmest hospitality. my thanks also go to general manager caruana, who has given bank of korea staff many opportunities to gain valuable experience working with the bis. looking back, i find that my four years of service as governor have been influenced the most by activities of the bis. this has been very instrumental to me in learning what central banking is all about. i am sure that my life as governor would have been much less fruitful and rewarding had there been no bis. and taking this opportunity, i would like to talk about three things in this regard today. first, let me begin by telling you why i have loved coming to basel. the reason why i have especially enjoyed the bis meetings is that this is a peer group meeting, in which governors can network with each other through intimate and frank discussions. i have gathered much information necessary to my work as a central bank governor through attending these meetings over the past four years. this has been an indescribably valuable experience to me, someone not originally from the central bank community. the bis is acknowledged as a world - class institution and knowledge base, which leads the way in dealing with the main issues of the global economy. i have learned a great deal not only from participating in the bis - led discussions, but also from reading the excellent background notes prepared by the secretariat. and these are the two things that i will miss most in the future. one notable trend seen in the recent recovery from the global crisis is that central banks are now

settlement position of each financial institution was calculated simultaneously and its account at the bank was credited or debited. with this settlement mode, financial institutions need only the funds equivalent to their net debit positions at the time of settlement, and thus, it is an efficient mode from the viewpoint of the management of liquidity and business operations. under this mode, however, if a single financial institution in the system were to fail to meet its obligations, all payments would inevitably be suspended. in the worst case, this would lead to a chain of defaults at financial institutions. since the total daily value of settlement via the current accounts at the bank is substantial, reaching around 120 trillion yen, the effects of this risk could be grave. in order to reduce such risk, in 2001, the bank converted the designated - time net settlement to a settlement mode in which funds transfers are made immediately and individually. this mode is called " real - time gross settlement ( rtgs ). " in rtgs, each payment instruction sent by financial institutions for a funds transfer through current accounts at the bank is settled immediately and individually upon receipt. therefore, negative effects of one financial institution's failure to pay would be limited to counterparties to that institution and would be minimized for other institutions and the overall settlement system. while this is a considerable advantage, there is an issue specific to rtgs that need to be addressed. namely, it requires financial institutions to prepare larger amounts of intraday liquidity for settlement compared with the designated - time net settlement. in the current rtgs mode, if each and every financial institution holds back its payments until it receives payments from others, there is a possibility that all system participants would end up short of funds and settlements would not be processed ( chart 6 ). if such behavior became widespread, it could lead to gridlock, and smooth settlement, the aim of rtgs, would not be achieved. the breakthrough in addressing this issue was the substantial progress in information processing technology. the bank has been working on the implementation of the nextgeneration rtgs ( rtgs - xg ) project, and is planning to introduce new functions, " queuing and offsetting mechanisms, " into the boj - net funds transfer system in october 2008 [ reference 6 ]. the " queuing mechanism " will place payment instructions in the boj - net central queue. the " offsetting mechanism " will then identify sets of payment instructions in the queue that can be offset simultaneously and settle these