BOK Governor Shin Outlines Cautious Policy
New Bank of Korea Governor Shin Hyun-song, in his inaugural address, emphasized a prudent monetary policy amid Middle East war uncertainty and outlined
South Korea's new central bank governor, Shin Hyun-song, began his four-year term on Tuesday, April 21, 2026. He immediately struck a cautious note on monetary policy, citing supply shocks from the Middle East war that have made inflation and growth outlooks more uncertain.
Shin stated that higher oil prices linked to the conflict are adding to inflationary pressure while also weighing on economic growth. He warned that financial market volatility has increased and risks to financial stability are building. The new governor said the Bank of Korea (BOK) needs to pursue price and financial stability through prudent and flexible monetary policy.
Shin is set to chair his first monetary policy board meeting on May 28. He succeeds Rhee Chang-yong, who stepped down a day earlier after completing his term.
A Broader Mandate for Financial Stability
Beyond interest rate policy, Shin signaled the central bank will take a more active role in guarding against financial risks. He argued that vulnerabilities are spreading beyond the traditional banking sector.
Speaking at his inauguration ceremony in Seoul, Shin said the BOK would seek better access to information on nonbank financial institutions. This is in response to their growing role and tighter interconnections across markets. He said the central bank must expand its analytical scope beyond conventional bank-centered indicators to include off-balance-sheet transactions and non-traditional financial products.
"We will enhance our early warning system (for financial stress) by making more active use of market price indicators alongside traditional indicators for financial soundness," Shin said. This indicates a greater reliance on real-time signals like stock prices, bond yields, the dollar-won exchange rate, and credit default swap premiums.
Shin argued that financial markets now require much closer scrutiny because old boundaries are eroding quickly. "The lines between banks and nonbanks, and between domestic and overseas sectors, are rapidly breaking down," he stated. He noted financial markets are becoming more tightly linked to asset markets, with greater spillover effects on the real economy.
He also said the BOK would discuss with other agencies ways to reinforce its role in maintaining financial stability.
Currency Internationalization and Digital Payments
Shin laid out a broader agenda extending beyond inflation and stability. He said preserving confidence in the Korean won in a globalized, digital environment requires pushing ahead with the currency's "internationalization."
This includes extending foreign exchange trading into a 24-hour market and building an offshore won settlement system. The goal is to improve access to won trading and bring South Korea's market infrastructure closer to global standards.
Shin also said the central bank would expand the use of deposit tokens through the second phase of Project Hangang. This project is the BOK's initiative to test digital payment systems using bank-issued deposit tokens alongside a central bank digital currency. He framed this effort as a balancing act between currency credibility, payments innovation, and financial safeguards.
Finally, Shin indicated the Bank of Korea would continue the structural reform research agenda pursued under his predecessor, Rhee Chang-yong. "Structural issues are a core variable shaping the conditions under which monetary policy operates," Shin said. He argued they are not separate from monetary policy, but an important part of it.
