BOK Nominee Shin Says Inflation Is Top Policy Risk, Pledges Won Internationalization

Bank of Korea governor nominee Shin Hyun-song identified rising inflation stemming from the war in the Middle East as the biggest monetary policy risk facing the central bank.

In written answers submitted to the National Assembly for his confirmation hearing on April 13, Shin was asked which posed the greatest policy risk among inflation, growth, financial stability and the exchange rate. He wrote that the main risk to consider in future benchmark-rate decisions is "above all, the heightened inflation pressure following the war in the Middle East." The response indicates price stability would take precedence over supporting growth.

Shin also pushed back against characterizations of him as a "practical hawk." He said that assessment appears to stem from his 2022 interview remark that "it is better to overreact than to underreact." At the time, inflation in major economies had reached 9% to 10%, and he said he was arguing for a forceful response under those conditions, not for applying the same approach in every situation.

He cited three major challenges for the South Korean economy: Middle East risks, polarization across sectors, and high home prices and household debt. Shin also expressed concern that strains could worsen in vulnerable sectors including the self-employed and marginal firms.

He wrote that distress in the petrochemical industry, which is grappling with a global supply glut, and in the real-estate project-financing market, which has been hit by weak regional property conditions, could expand rapidly if tensions in the Middle East persist. He called for policy support alongside an orderly restructuring process.

As core priorities for his first year in office, Shin listed macroeconomic stability, internationalization of the won, development of a future monetary ecosystem in step with digital-finance innovation, analysis of structural reform tasks and policy recommendations, and strengthening the BOK's organizational capacity. He said he would improve access to the won and South Korea's capital markets to increase the currency's international use. He also pledged to preserve confidence in the currency and enhance its value.

As a crisis-response case from overseas central banks that South Korea could learn from, Shin pointed to the 2023 Silicon Valley Bank episode in the US. After news of the bank's large bond losses spread through social media and triggered what he described as the world's first "digital bank run," the Fed moved to guarantee all deposits. Shin said the case offers important lessons for South Korea, where mobile and internet banking usage is high.

On the possibility of a war-related supplementary budget, Shin said such a package would lift this year's economic growth by about 0.2 percentage point.

Addressing controversy over his foreign-exchange assets, Shin said he had sold a substantial portion of his foreign-currency-denominated financial assets and plans to reduce the share of those holdings over time.

He added that he feels a strong sense of responsibility as a nominee for public office and has put two of the three homes he owns up for sale.

Shim Sung-mi / Chung Young-hyo / Choi Hyung-chang, Korea Economic Daily reporters smshim@hankyung.com