Bank of Korea (BOK) Governor Shin Hyun-song said Korea's economy has developed immunity to external shocks, noting that the won's resilience to external shocks has recently strengthened. He also said that even with annual U.S.-bound investments of up to $20 billion, based on foreign exchange reserves and operating revenue, it would not be at a level that burdens the won-dollar exchange rate.
Shin Hyun-song, governor of the Bank of Korea (BOK), stated accordingly at a press briefing with correspondents he hosted on the sidelines of the Federal Reserve's annual economic policy symposium (Jackson Hole meeting) in Jackson Hole, Wyoming, on the 28th (local time). Citing the BOK's recent preemptive benchmark rate hikes, Shin said, "We have raised rates and stabilized the exchange rate to some extent, and we are quite well prepared for any kind of shock."
On the trend of the won-dollar exchange rate falling despite the stronger dollar, he assessed, "I believe the won has now gained a certain degree of immunity." On the 28th, the won-dollar rate closed at 1,372.5 won in the Seoul foreign exchange market, the lowest closing level in 1 year and 1 month since July 24 last year (1,367.2 won).
Shin emphasized that the importance of the exchange rate is particularly great in Korea. "Korea is an advanced economy, but due to the trauma of events such as the foreign exchange crisis, the exchange rate carries enormous significance," he said. "It is not merely a relative price that indicates terms of trade; it has become an indicator encompassing all metrics." He added, "We view (the exchange rate) as a symbol of trust in the currency system, and as the Central Bank, the Bank of Korea (BOK) intends to pay special attention and play a role in anchoring the foreign exchange market."
He said U.S.-bound investments would not burden the exchange rate. Asked whether the $20 billion that Korea agreed to invest in the United States annually could affect the exchange rate, he said, "This was agreed within a fully manageable range," adding, "According to the memorandum of understanding (MOU), we agreed to invest up to $20 billion (about 27.6 trillion won) in the United States each year." He continued, "We will invest up to $20 billion, but if our circumstances are not favorable, we could invest less or not at all." Considering foreign exchange reserves of about $427 billion (as of July) and asset management revenue, he explained it is within a manageable range.
Regarding monetary policy, he said there is no need to mechanically follow the Federal Reserve's moves. Shin said, "Just because the United States raises rates does not mean we must also raise ours," adding, "If the United States keeps raising rates, we will have to reassess as monetary policy conditions change, but we do not mechanically follow by merely matching interest differentials."
On Federal Reserve Chair Kevin Warsh's speech that drew attention at this Jackson Hole meeting, he said it carries significant implications for the September Federal Open Market Committee (FOMC). He said, "Chair Warsh painted a very big picture and included, to some extent, elements the market had sought," adding, "There are significant implications for the September FOMC."
He expressed a positive view of the Korea-style dot plot (K-dot plot). Shin said, "I am not that negative," adding, "We will conduct a comprehensive assessment with the Monetary Policy Board one year after adoption."