The Korean Economic Forum
The Role of Bank of Korea Revisited
In June Kim Seoul National University)Year 2019Vol. 11No. 4
Abstracteconomy and accumulation of domestic structural problems. At this juncture, theBank of Korea should aim at achieving not only price stability but also financialstability. Financial stability can be obtained by preventing occurrence of financialsystemic risks. Three major financial risks in Korea are those; boom bust cyclein real estate markets, a large amount of abrupt capital flows due to thedifferentials between domestic and international interest rates, and risks involvedin increased connectedness among financial institutes and increased share ofnon-bank financial institutes. The Bank of Korea should put major emphases onachieving financial stability, watching and analyzing the developments of realestimate markets, flows of capital and the speed of increasing household debts,when it carries out monetary policies.For the financial stability, the optimal combinations of monetary andmacro-prudential policies are required. The monetary policies have influences onthe macro-prudential policies and vice versa. In Korea, however, the Bank ofKorea is in charge of monetary policies while the financial authorities areresponsible for macro-prudential policies. To resolve the current problems, it isdesirable to establish tentatively named “Financial Stability Board” consisting ofMinistry of Strategy and Finance, Bank of Korea, and financial authorities.Financial Stability Board can take full responsibilities for macro-prudentialpolicies and making important decisions concerning financial stability.The Bank of Korea, however, should remember the first line of responsibilityfor financial stability falls upon the monetary policies of the Bank of Korea.Independence of the Bank of Korea only can be secured when the Bank of Koreafulfills its responsibility for price and financial stability successfully.