Rhee Chang-yong, governor of the Bank of Korea, said of the won-dollar exchange rate, "Only YouTubers in Korea say the won will soon become worthless paper."
Visiting the Bank of Korea press room on Jan. 2, Rhee said, "Overseas investment banks (IBs) think an exchange rate at the 1,480-won level is too high. Reports generally come out (projecting) the low 1,400-won range," and stated accordingly.
He also made clear that a significant part of the upward pressure on the exchange rate is being formed by expectations rather than real-sector conditions. Rhee said, "Domestic expectations are driving the exchange rate higher," adding, "It is hard to say what the appropriate rate is, but the fact that a considerable portion is rising decoupled from the dollar index (DXY) is because expectations are at work."
He also drew a line under concerns surrounding the annual $20 billion in investments in the United States. He said, "We will never proceed mechanically," adding, "Even after I leave the BOK, the Monetary Policy Committee members will not do it. The BOK will play the role of treasurer."
As a measure to stabilize the foreign exchange market, he again mentioned the role of the National Pension Service. Rhee said, "If the National Pension Service takes macro effects into account, it should hedge more than it does now, and it is only natural to reduce overseas investments."
He went on, "The National Pension Service says it will be allowed to issue its own foreign debt and use that to reduce its impact on the foreign exchange market, and I think that is also a good method," adding, "In Canada, this approach is delivering a 20% foreign exchange hedging effect." The point is that adjustments to the National Pension Service's strategy could, to some extent, contribute to stabilizing the foreign exchange market.
He pushed back against the view that the National Pension Service's yield could be damaged. He said, "The National Pension Service has not considered at all until now the expense that people in Korea may not find jobs, or that when the exchange rate rises, importers face difficulties."
At the same time, he noted that while the choices of individual investors and pension funds may be rational individually, they can cause side effects at the macro level.
Rhee said, "Korean retail investors trading U.S. stocks naturally thought it was better to go overseas because Korea's stock market moved sideways so much, and if the National Pension Service seeks only to raise the rate of return without considering macro effects, each would be moving in a rational direction, but in the big picture it may not be rational for the country as a whole."