New BOK Chief Shin Pledges Tighter Oversight of Hedge Funds, Crypto on Day One

Shin Hyun-song, the new governor of the Bank of Korea, pledged in his inauguration speech on April 21 to strengthen macroprudential policy by tightening oversight of nontraditional financial products such as hedge funds and cryptocurrencies. He also said he would discuss ways to expand the central bank’s role in safeguarding financial stability.

Speaking at a ceremony at the BOK annex in central Seoul, Shin said the central bank would improve access to information on the non-bank sector, reflecting the expansion of non-bank finance and stronger linkages across markets. He added that the scope of analysis needs to widen to include off-balance-sheet transactions by financial institutions and nontraditional financial products.

Shin also pledged to strengthen the central bank’s early-warning function on financial stability. The BOK will make more active use of market-price indicators alongside existing prudential metrics, he said. That implies broader use of stock prices, bond yields, the won-dollar exchange rate and credit-default swap, or CDS, premiums in the early-warning system. He added that he would work with relevant agencies on ways to strengthen the central bank’s financial-stability role.

Shin said the need to closely monitor domestic and global financial markets has increased in recent months. Boundaries between banks and non-banks, and between domestic and overseas sectors, are breaking down rapidly, he said. Financial markets are also becoming more tightly linked with asset markets, amplifying spillovers to the real economy. As a result, the old framework alone is no longer enough to fully identify and respond to risks in the financial system.

Beyond financial stability, Shin listed additional priorities including price stability, preserving confidence in the currency and the stability of payment and settlement systems, and offering policy proposals for structural reform.

Uncertainty over the paths of inflation and growth has risen because of supply shocks tied to the war in the Middle East, Shin said. He pledged to pursue both price stability and financial stability through cautious and flexible monetary policy. The BOK will also continue efforts to improve the effectiveness of monetary policy, review its tools to ease complex trade-offs among policy variables, and coordinate policy with the government.

Shin also stressed the need to pursue the internationalization of the won to preserve confidence in the currency in an increasingly globalized and digital financial environment. The BOK plans to improve the accessibility and stability of foreign-exchange trading to meet global standards through 24-hour FX market trading and an offshore won settlement system. It also plans to expand the use of deposit tokens through the second phase of Project Hangang. Shin said he would work with the government so that won internationalization, payments innovation and the macroprudential framework can form a three-pronged axis and generate synergies.

Shin also said he would continue the structural-reform research led by former Governor Rhee Chang-yong. Structural problems are a key variable shaping the conditions for monetary policy, he said. They are not separate from monetary policy but an important part of how it is conducted.

Shim Sung-mi, Hankyung.com reporter smshim@hankyung.com