On the 23rd, when Korea's financial markets swung on concerns about a war in Iran, some analysts said President Lee Jae-myung's nomination of Shin Hyun-song, head of the currency and economic department at the Bank for International Settlements (BIS), as the next Bank of Korea (BOK) governor candidate also weighed on the stock market.
As interpretations spread that Shin prefers a hawkish stance favoring tight currency policy, views gained traction that the abundant liquidity that had buoyed stocks could change.
According to Shin's past remarks and research, Shin emphasized the Central Bank's preemptive defense and active role as an "inflation fighter." Shin is also known for having anticipated the global financial crisis in the mid-2000s, warning that excessive subprime mortgage loan lending could undermine financial soundness and trigger a financial crisis. Market participants have ample reason to view the new BOK governor candidate as "hawkish."
However, many said it is difficult to interpret Shin's tendencies as an immediate change in the currency policy path. Experts instead expect the new governor to pursue data-driven policy based on strong expertise and experience.
There are several grounds for such expectations. Shin noted that in currency policy decisions, not only prices but also demand and inflation expectations matter. It is interpreted to mean Shin could distinguish whether price rises are driven by demand increases or by temporary external shocks such as higher international oil prices, and then pursue selective currency policy.
At a BIS roundtable this month, Shin offered a more direct hint about current conditions, noting that, in theory, if a supply shock is temporary, the Central Bank's textbook response is to refrain from reacting with currency policy and instead watch the impact.
While emphasizing financial stability as one of the key objectives of currency policy, Shin does not necessarily take the view that accommodative currency policy causes financial unrest.
Although published 13 years ago, an interesting case is Shin's joint paper with Kim Se-jik, president of the Korea Development Institute (KDI), which analyzed Korea's jeonse system in 2013 from an economic perspective.
In the paper, Shin and Kim interpreted jeonse not as "simple lease" but as a "repurchase agreement loan contract secured by dwellings (housing repo)," and assessed that an efficient contract structure combining collateral (dwellings) and the right of use (residency right) reduced capital expense and spurred investment by households and corporations, laying the foundation for economic growth.