Bank of Korea Governor Shin Hyun-song speaks with Korean correspondents at the economic policy symposium (Jackson Hole meeting) held in Jackson Hole, Wyoming, on Aug. 28 local time. Photo courtesy of the Bank of Korea
WYOMING — Bank of Korea Governor Hyun Song Shin said South Korea’s preemptive rate increases have given the won immunity to external shocks, and expressed confidence that the country can comfortably handle planned investments in the United States.
Shin made the assessment while meeting Korean correspondents on the sidelines of the Jackson Hole economic policy symposium in Wyoming on the 28th, local time. “I see room for the won-dollar rate to fall further,” he said. Shin attended the symposium every year during his time at the Bank for International Settlements, but this was his first visit as head of the BOK. “The exchange rate is a very important variable in that it encompasses all indicators, including confidence in the Korean economy,” he said. “We are now quite well prepared for any kind of shock.” In the Seoul foreign exchange market on the 28th, the won closed at 1,372.5 per dollar, its strongest level in 13 months since July 24 last year, when it stood at 1,367.2.
Shin repeatedly stressed that the central bank is paying particular attention to anchoring the foreign exchange market. Beyond the central bank’s efforts, he cited SK hynix’s listing of American depositary receipts and increased dollar selling by exporters as short-term factors behind the recent stability in the won-dollar rate. He also asserted that the up to $20 billion a year that South Korea has agreed to invest in the United States will not affect the exchange rate. “The Korea-U.S. trade agreement to invest up to $20 billion means we can invest less than that, or not at all, if our circumstances do not allow it,” Shin said. “As of last month, foreign exchange reserves stood at $427 billion, so this is well within what we can handle.”
Shin also assessed that Federal Reserve Chair Kevin Warsh delivered a considerably clearer message at this year’s Jackson Hole meeting than he did at the July Federal Open Market Committee meeting. As a result, he said, the FOMC meeting on the 15th and 16th of next month has become considerably more important. “In his Jackson Hole speech, Chair Warsh built the logic that inflation is far above the 2% target and has persisted too long, that the Fed’s tool is the policy rate, and that the Fed therefore has work to do,” Shin said. “It was a message that markets should be left to work but that the central bank will also play its role, so it was completely different from the July FOMC press conference.”
Shin said his own relationship with Warsh also influenced the process of scrapping forward guidance. “Back when the 10-year Treasury yield was below 1%, stocks fell only on days when the Fed announced its monetary policy outlook and were unaffected on other days,” he said. “Chair Warsh and I talked often this year about being sparing with words, and in this speech he cited my paper on the importance of two-way communication between central banks and markets.” On the Korean-style dot plot, introduced relatively recently, Shin said: “I am not that negative about it. I will assess it comprehensively with the Monetary Policy Board members a year from now.”
While stressing that the Korea-U.S. interest rate gap is a very important fundamental factor for the won-dollar rate, Shin signaled that the Monetary Policy Board will steer policy on its own judgment in the second half as well. “Just because the United States raises rates does not mean we must raise ours,” he said. “Of course, if the United States keeps raising rates, monetary policy conditions change and we would have to make a fresh judgment then, but we will not mechanically follow along just to match the rate gap.”
Shin also said the BOK’s digital currency experiment, known as Project Han River, was cited several times as a model case at this year’s symposium, held under the theme “Financial Innovation: Implications for Payments and Policy.” He added that because the gathering is fundamentally a meeting among central bank governors, administration policies such as the recently disputed bond buybacks pushed by U.S. Treasury Secretary Scott Bessent were not discussed.