Bank of Korea Governor: "If No Escalation in Middle East, Exchange Rates Will Stabilize"

"Significance of Consensus Building at the Korea-US-Japan Finance Ministers Meeting"

Lee Chang-yong, Governor of the Bank of Korea, on the 19th (local time) forecasted that the exchange rate situation would stabilize “if the conflict does not escalate further” amid exchange rate instability caused by the clashes between Iran and Israel.

Lee Chang-yong, Governor of the Bank of Korea [Photo by Yonhap News]

Attending the International Monetary Fund (IMF) Spring Meetings in the United States, Governor Lee said at a press briefing, “Multiple uncertainties have erupted simultaneously,” adding, “With Iran’s attack on Israel and data emerging that the U.S. interest rate cuts are delayed more than expected, not only Korea but Asian currencies have weakened together.”

Governor Lee stated, “We reached a consensus that the won’s depreciation speed is excessively fast in the current situation, similar to Japan, and shared this view at the Korea-U.S.-Japan finance ministers’ meeting, after which the exchange rate began to stabilize. Although the stabilized exchange rate after government intervention was shaken when Israel retaliated against Iran, news that the conflict would not escalate further has brought the situation back to stability.”

He continued, “There are many uncertainties, but for countries like ours with high oil consumption, the situation is uncertain depending on developments in the Middle East,” emphasizing, “If the conflict does not escalate, oil prices will not rise further, and if the Strait of Hormuz is not blocked, I believe the exchange rate will also move back toward stability.”

Regarding the significance of the Korea-U.S.-Japan finance ministers’ meeting, he analyzed, “It is important that not only Japan and Korea but also the U.S. recognized that the depreciation speed is excessive from any perspective,” adding, “It is a very meaningful outcome in terms of forming a consensus.”

On the possibility of Korea lowering interest rates before the U.S., he said, “The Monetary Policy Board’s primary concern is the consumer price inflation rate,” and added, “We are currently uncertain whether the inflation rate will drop to an average of 2.3% in the second half of the year, and we are prioritizing monitoring this.”

Regarding the possibility of expanded U.S. protectionist policies if former President Donald Trump were elected, he said, “Policies in the event of Trump’s election have been announced through various documents and are known to have a stronger protectionist tone,” but added, “We need to wait and see the election results.”

Meanwhile, Governor Lee previously attended a discussion hosted by the Peterson Institute for International Economics in Washington D.C., where he strongly proposed “developing a common international regulatory framework for tokenized assets” as part of the international joint project on digital currency called the ‘Agora Project.’

Asset tokenization refers to converting traditional assets such as deposits, financial products, or real estate into ‘digital certificates’ that can be recorded on programmable platforms. The Agora Project is an international cooperative initiative exploring the potential to improve the monetary system by utilizing tokenized deposits and central bank digital currencies (CBDCs).