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

Shin Hyun-song, the nominee to head the Bank of Korea, said the biggest monetary policy risk facing the central bank is rising inflation stemming from the war in the Middle East.

In written answers submitted to the National Assembly on June 13 ahead of his confirmation hearing, Shin was asked which of inflation, growth, financial stability and the exchange rate posed the biggest monetary policy risk. He wrote that “the most important risk to consider in future base-rate decisions is, above all, the heightened inflation pressure following the war in the Middle East.” The response indicates that price stability would take precedence over supporting growth.

Shin also addressed criticism from some quarters that he is a “pragmatic hawk.” He said that characterization arose from a 2022 interview in which he said “it is better to overreact than to respond too passively.” With inflation in major economies running at 9% to 10% at the time, he said he was arguing for a forceful response under those conditions, not the same approach in every situation.

He identified three main challenges for the Korean economy: Middle East risks, widening disparities across sectors, and high home prices and household debt. He expressed particular concern that strains could worsen in vulnerable areas such as the self-employed and marginal companies. He wrote that losses in the petrochemical industry, which is facing a global supply glut, and in the property project-financing market, which has been hurt by weak regional real-estate conditions, could increase sharply if the Middle East situation drags on. He added that policymakers should provide support while steering an orderly restructuring.

As core priorities for his first year in office, Shin listed stabilizing the macroeconomy, internationalizing the won, building a future monetary ecosystem in line with digital-finance innovation, analyzing structural reform tasks and offering policy recommendations, and strengthening the BOK’s organizational capabilities. He said he would seek to expand the won’s global use by improving access to the currency and to Korea’s capital markets. He also pledged to preserve trust in money and enhance the currency’s value.

Asked which example of central-bank crisis management South Korea should study, Shin pointed to the 2023 Silicon Valley Bank episode in the US. After news of the bank’s large bond losses spread on social media and sparked what he described as the world’s first digital bank run, the Federal Reserve moved to guarantee all deposits. The episode has important implications for South Korea, where mobile and internet banking use is high, he said.

On the prospect of a war-related supplementary budget, Shin said such a package would raise this year’s growth rate 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 gradually reduce the share of those holdings.

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

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