The departure ceremony of Bank of Korea Governor Lee Chang-yong
Lee Chang-yong is stepping down amidst foreign exchange and financial instability
Pride in preemptively restoring the inflation target to 2%
Cautions against the side effects of solely relying on foreign exchange market interventions or interest rate policies
Stresses that structural reforms are ongoing, and the Bank of Korea should continue research
At the departure ceremony held at the Bank of Korea’s annex in Jung-gu, Seoul, Lee Chang-yong, who led the monetary policy for the past four years, expressed his reflections. He warned that managing exchange rates with foreign exchange market interventions or interest rate policies alone, as in the past, could lead to further side effects and emphasized the need for structural reforms in areas such as education, housing, and balanced development.
Throughout his term, Lee reflected that “our economy has been tested by unexpected shocks.” Following his appointment, the war between Russia and Ukraine caused global inflation to surge, prompting him to implement two unprecedented “big steps” raising the benchmark interest rate to 3.5%. This was followed by events such as the collapse of Silicon Valley Bank and an increase in household debt, which led to an unprecedented state of emergency and economic contraction. Additionally, the situation was exacerbated by changes in U.S. tariff policies and a surge in exchange rates due to the Middle Eastern conflicts.
Lee acknowledged the challenges, stating, “handing over the position while the foreign exchange and financial markets are not fully stable due to the unresolved Middle Eastern war is a heavy burden.” Yet, he took pride in having restored inflation to a target level of 2% before other major central banks through interest rate policies. He also evaluated that communication with the market was improved through the introduction of a Korean-style forward guidance, and that over 20 structural reform reports strengthened the advisory role in policymaking.
Looking to the future challenges for the Bank of Korea, he stressed, “The realization I got from managing several crises over the past four years is that it is increasingly difficult to achieve economic stability and growth through monetary and fiscal policies alone.” He explained that as the economic structure changes, the influence of these policies wanes, yet public expectations of policy authorities remain high, creating a growing gap between the two.
Particularly, he highlighted the changes in foreign exchange and market structures. Unlike the past, the increased presence of domestic companies and individuals, including the National Pension Service, alters the structure so that exchange rates are not explained by interest rates or short-term policy variables alone. Lee warned, “If we attempt to manage foreign exchange rates solely through interventions or interest rate policies without institutional efforts to address this reality, greater side effects may arise.”
Furthermore, despite a recent semiconductor boom stabilizing the economy and exchange market to some extent, he pointed out that the structural issues of overreliance on specific industries and resulting polarization have worsened. He urged the Bank of Korea to continue researching long-term challenges facing the economy, such as education, housing, balanced development, youth employment, and elderly poverty, as structural reforms remain ongoing. He added that addressing low birth rates and slow growth requires structural reforms in labor and education, rather than short-term monetary or fiscal policy measures.
Lee also conveyed a message to maintain what he called the “noisy Bank of Korea” culture. Since his tenure, moving away from the previously valued silence, the Bank promoted policy discussions by launching a series of ‘structural reform studies’ covering topics from low birth rates and aging to autonomous taxis and end-of-life care, and even proposed measures like proportional representation for university admissions to address social issues.