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[이데일리 원다연 기자] The Bank of Korea puts more weight on financial stability in next year’s monetary policy management. In case the economic slump worsens, we will also review ways to use policy tools other than interest rates, and begin preliminary work in preparation for the issuance of central bank digital currency (CBDC).
The Bank of Korea announced on the 25th that, in the ‘2021 Monetary Credit Policy Operation Direction’, “while maintaining the monetary policy easing stance, we will be more cautious of the risk of financial imbalance due to the prolonged monetary easing stance.”
Pay attention to the increase in fund flow and private credit to the housing market… Modification of operating principles
In the general principle of the operation of the monetary credit policy for next year, the BOK stated, “In the event of financial instability, the spread of monetary policy may be limited and the stability of the macroeconomic may be hindered. ‘Efforts to stabilize financial markets’ were newly stated.
Specifically, the plan is to pay more attention to the possibility of a financial imbalance, such as an inflow of funds into the asset market and an increase in household and corporate debt, while the easing financial conditions continue during the monetary policy operation process.
The BOK said, “In addition to taking into account the impact of the government’s housing and macroprudential policy on the flow of money to the asset market such as housing, the rise in household and business loans, etc., volatility in price variables and capital inflows will vary according to changes in financial market risk factors. As it can be expanded from time to time, we will closely examine the impact of the development of internal and external uncertainty factors on risk preference and global investment flow.”
Review policy measures other than interest rates and strengthen support for new growth
In addition, the plan is to find suitable measures to fulfill the demand for the role of employment security along with research on the improvement plan of the current price stabilization target system. In addition, in case the economic slowdown intensifies, it has announced that it will review ways to use policy tools other than interest rates.
In the case of financial brokerage support loans, support for new growth sectors will be strengthened. Specifically, considering the changes in conditions after Corona 19, the plan is to seek measures to strengthen support for new growth sectors and employment expansion companies that can contribute to expanding the growth engine of the Korean economy.
Review prior announcement of purchase of KTBs and continued efforts to expand currency swaps
In order to stabilize the financial market, a plan to announce the timing and scale of simple purchase of KTBs in advance is also considered. When the volatility of long-term market interest rates increases due to an imbalance in the supply and demand of KTBs, the BOK simply purchases KTBs and plans to review prior announcement plans.
In order to stabilize the foreign exchange market, efforts to expand currency swaps with central banks in major countries are also continued. The BOK announced plans to extend currency swap contracts with central banks in major countries with maturities such as Switzerland, and strengthen the foundation for the stability of the foreign exchange market by increasing the effectiveness of the multilateral currency swap, CMIM (Chiang Mai Initiative Multilateralization).
CBDC pilot test/payment role institutional maintenance
Preparing for the issuance of central bank digital currency (CBDC) next year will also speed up. The BOK will build a CBDC pilot system in a virtual environment next year to carry out tests, and to improve related laws and systems to respond if necessary.
In addition, the BOK will be reorganizing the system related to payment and settlement, which is its own business. The BOK said, “We will closely examine the effects of changes in the payment and settlement environment, such as digital innovation, participation in Big Tech’s financial settlement network, and the introduction of new legal systems related to payment and settlement, and take countermeasures.” In response to the demand for expansion of the central bank’s role in response to the change, the Bank of Korea’s role and responsibilities related to payment and settlement will be more clearly established.”