Shin Hyun-sung: "The Won Has Gained Immunity"... Emphasizes 'Independent Judgment' Apart from U.S. Interest Rates

The Korean won's ability to respond to external shocks has strengthened... Governor Shin says "the exchange rate is somewhat under control"

Investment in the U.S. capped at $20 billion... Can be managed through foreign exchange reserves' returns

Shin Hyun-sung, the Governor of the Bank of Korea, recently assessed that the Korean won's ability to respond to external shocks has significantly increased. He diagnosed that "the won has gained some immunity" based on the fact that the won/dollar exchange rate is falling even as the U.S. dollar is strong.

On the 28th (local time), Governor Shin met with domestic correspondents during the economic policy symposium held in Jackson Hole, Wyoming, where he shared his views on the recent foreign exchange market and monetary policy. This is the first time he has attended the Jackson Hole meeting in his capacity as the Bank of Korea Governor.

Governor Shin emphasized that the Bank of Korea has proactively adjusted the base interest rate, indicating that the Korean economy is prepared to respond to external shocks. He stated, "I believe the won has gained some immunity" based on the recent trends in the foreign exchange market. He noted that despite the rise in the dollar index, the won/dollar exchange rate has actually shown a decline.

In fact, on the 28th, the won/dollar exchange rate in the Seoul foreign exchange market closed at 1,372.5 won, down 5.0 won from the previous trading day. This is the lowest level in about 13 months since July 24 of last year when it was 1,367.2 won.

"In Korea, the exchange rate is not just a simple price variable"

Governor Shin explained that the significance of the exchange rate in Korea is much greater than in other advanced countries. Having experienced foreign exchange crises, the exchange rate has established itself as a key indicator that reflects overall economic confidence, beyond merely reflecting export and import conditions.

He stated, "Korea is an advanced country, but due to the trauma of foreign exchange crises, the significance of the exchange rate is enormous," adding that it has become an indicator that encompasses all metrics rather than just a relative price indicating trade conditions. He further emphasized, "In Korea, the exchange rate is particularly important," viewing it as a symbol of trust in the monetary system.

He also expressed the intention for the Bank of Korea to play a role in stabilizing the market by paying special attention to movements in the foreign exchange market.

Regarding the recent decline in the won/dollar exchange rate, he mentioned short-term supply and demand factors. It has been analyzed that the increase in so-called 'negotiation volume' where export companies convert dollars into won, along with funds related to SK Hynix's American Depositary Receipts (ADRs), has influenced this trend.

On the $20 billion annual investment in the U.S.: "A manageable level"

He expressed that there is no need for significant concern about the possibility that Korea's decision to invest up to $20 billion annually in the U.S. could burden the value of the won.

Governor Shin explained that the scale of the investment was agreed upon at a level that Korea's foreign exchange conditions can sufficiently handle.

He emphasized that the memorandum of understanding (MOU) between Korea and the U.S. specifies 'up to $20 billion', stating, "It means we will invest up to $20 billion, but if our situation is not favorable, we can invest less or not at all."

In particular, he explained that a significant portion can be managed solely through the returns generated from Korea's foreign exchange reserves, which were approximately $427 billion as of July.

Governor Shin pays attention to Wash's speech... "Significant implications for the September FOMC"

He also evaluated the messages related to the Federal Reserve (Fed) that emerged from the Jackson Hole meeting, particularly noting the speech by Fed Chair Kevin Wash. Governor Shin mentioned the background of Wash's restraint in public statements, referring to the so-called 'Hall of mirrors' problem, where excessive communication by central banks can influence financial market pricing.

Governor Shin stated that he deeply resonates with this perspective of Wash. He assessed that Wash's speech encompasses various elements that the market has been demanding in a broader context. He analyzed, "Looking at Wash's speech, it paints a very big picture while incorporating the elements that the market has been asking for to some extent," and noted that it has significant implications for the September Federal Open Market Committee (FOMC).

Unlike Wash, who has shown a negative stance on the dot plot within the Fed, he gave a relatively positive evaluation of the 'K-dot plot' introduced by the Bank of Korea. Governor Shin stated, "I am not that negative," adding, "We will comprehensively evaluate it with the monetary policy committee members one year after its introduction."

"The Bank of Korea's base rate does not mechanically move according to U.S. rates"

He reiterated the need for independent judgment regarding the impact of future changes in U.S. monetary policy on the Bank of Korea's base rate decisions. He explained that just because the U.S. raises its base rate does not mean Korea must necessarily move in the same direction.

Governor Shin stated, "Just because the U.S. raises rates does not mean we have to raise them as well," adding, "If the U.S. continues to raise rates, the conditions for implementing monetary policy will change, and we will need to reassess then."

He clarified that in order to maintain a certain interest rate differential between Korea and the U.S., the Bank of Korea does not simply follow U.S. rate movements. He emphasized, "We do not mechanically adjust to match the interest rate differential."

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