greater broadening and institutionalization of such inter - central bank cooperation, to ultimately help establish a global financial safety net. in this respect, east asian countries ’ inauguration this march of chiang mai initiative multilateralization, a multilateral currency swap arrangement covering all asean + 3 members, is a mark of significant regional progress. i am delighted to note as well the recent agreement, at south korea ’ s initiative, to discuss global financial safety net improvement during this year ’ s g20 summits in toronto and here in seoul. establishment of such an international institution is of course by no means easy. for it to be effective, several salient problems need to be resolved, including the “ stigma ” effect on countries needing assistance, on the one hand, and moral hazard on the other. strengthening of macroprudential regulation is also likely to help emerging market economies manage volatile capital flows. even if individual financial institutions are rational, their behavior can generate negative externalities. indeed, as i have mentioned, foreign capital flows to emerging market economies tend to be procyclical, heightening the need for countercyclical policy measures through which these countries can cope with such procyclical flows. macroprudential regulation can be a significant help in this respect, by changing financial institutions ’ incentive structures in ways that internalize the negative externalities caused by their own activities. it is, of course, important to prevent the possibility of regulatory arbitrage in response to our strengthening of macroprudential regulations, and for this international cooperation is very much required. all of these issues should of course be discussed in harmony with our efforts to build a better international financial architecture. and at this moment, i think the g20 may provide the ideal forum for effective international cooperation to this end. concluding remarks i have until now briefly discussed some major challenges that central banks face in overcoming the global financial crisis and afterwards. before closing, i would like to call attention to one final point. in our efforts to search for a new paradigm for central banking, we will naturally develop new economic models and theories. in this regard, one very important lesson from the recent crisis is that such models and theories must face up to reality. the real world does not always work in the way economists would like it to work. and when we face such a situation, it is the theories that need to be twisted, and not the facts that they are supposed to be helping us understand. especially, we should always keep in

economy. dear members of the bank of korea! for the bank of korea to meet the expectations of the public and remake itself as a policy institution with exceptional expertise amid a rapidly changing economic environment, we need to achieve commensurate organizational change and innovation. in this endeavor, based on the consulting results from an external professional institution and a wide range of staff opinions, we are drafting a medium - to long - term plan to innovate our administrative and personnel management system, which includes a roadmap for implementing organization - and personnelwide innovation. i hope that this upcoming plan will be successfully finalized and will play a pivotal role in pursuing innovation in the future. to make our efforts come to fruition, it goes without saying that continued careful attention and participation of staff, the main agent of innovation, is essential. my fellow members of the bank of korea! over the last two years, we have all done our utmost for the recovery and stabilization of our economy amid the unprecedented covid - 19 pandemic. even under these difficult policy circumstances, the so - called “ permanence of uncertainty, ” the bank of korea was able to faithfully undertake its duties. this was made possible thanks to the very best efforts of our staff to fulfill their duties and responsibilities. this year will likely be another challenging one for our economy in terms of both the domestic and external environment. i would like to ask all staff to remain vigilant and faithfully fulfill their roles and responsibilities. i hope that this year will be the last year of the pandemic. as we greet this new year, i want to wish you all the very best of health and good fortune. thank you. 3 / 3 bis central bankers'speeches