[2025 Audit] Bank of Korea Audit Ahead of MPC, Lee Chang-yong: "Urgent Need for Structural Change in Real Estate... Overheated Market Requires Comprehensive Policy" (Summary)

Inevitable Real Estate Measures...
"There Will Inevitably Be Affected Groups, Supplementary Policies Needed"
Bank of Korea-U.S. Treasury Currency Swap,
"Bank of Korea Has Never Considered It"
"Why Didn't You Buy Gold?"...
Lee Chang-yong: "Will Reexamine Asset Allocation Structure"
"Bank of Korea Should Actively Participate in 'Unanimous Consent' Approach to Stablecoin Institutionalization"

On October 20, during the National Assembly Planning and Finance Committee's audit of the Bank of Korea, a series of questions were raised regarding the overheated real estate market. Lee Chang-yong, Governor of the Bank of Korea, stated, "The real estate issue has become too complex to be resolved by a single policy," adding, "If there is no significant change in the current situation, the impact on society will be substantial."

Governor Lee also emphasized that reforms addressing structural issues, such as educational disparities between regions that affect housing prices, must take place. While supply is important, he argued that, from a policy perspective, reducing the influx of population into Seoul is necessary to stabilize real estate prices.

Lee Changyong, Governor of the Bank of Korea, is responding to questions from lawmakers during the National Assembly Planning and Finance Committee's audit of the Bank of Korea held on the 20th at the Bank of Korea in Jung-gu, Seoul. Bank of Korea

Inevitable Real Estate Measures..."There Will Inevitably Be Affected Groups, Supplementary Policies Needed"

Governor Lee agreed that the government's recent real estate measures were unavoidable decisions for market stability, but he also expressed concern that genuine homebuyers could be adversely affected.

When asked to evaluate the October 15 real estate measures, he said, "We have to wait and see the results, but it is true that there are side effects," and cited, "For example, the recent policy on jeonse loans has made it much harder to obtain jeonse, which could cause harm." He added, "There are cases where people who expected to receive jeonse loans are unable to do so, so I believe supplementary policies are necessary."

However, he stated that it is time to reform the jeonse system. When asked whether it was inevitable to include jeonse loans for single-home owners in the Debt Service Ratio (DSR), he replied, "Personally, I think so."

Governor Lee said, "In the past 25 years, household debt has never decreased relative to GDP. This is not so much a policy failure as a result of the difficulty in buying homes and rising prices, which have made things tough for ordinary people. As a result, short-term fixes have been used as solutions, leading to these problems," and added, "Regardless of political party, everyone agrees that the real estate issue has reached a critical point and cannot be left unaddressed."

He further explained, "It is difficult to judge which method is best because this is not a problem that can be solved all at once or in the short term. Demand suppression alone is not enough; supply is also important, and mid- to long-term policies to prevent population influx into Seoul are also necessary." He continued, "Once a policy is set, I believe we need to build consensus for about ten years and wait for the effects. There is a shared understanding that solving the real estate issue is a central task, and it should be pursued continuously."

Regarding the view that the tax system should be reformed to stabilize the real estate market, he said, "It is necessary to examine whether asset holding taxes or capital gains taxes are fair among different assets," but also noted, "This should be approached as an improvement to the tax system itself, rather than specifically for real estate purposes."

Apartment complexes in the Seocho and Yongsan districts as seen from Namsan, Seoul. Photo by Yonhap News

Bank of Korea-U.S. Treasury Currency Swap, "Bank of Korea Has Never Considered It"

Regarding lawmakers' questions about the 350 billion dollar investment in the U.S., Governor Lee stated, "I told the government that the amount of foreign currency the Bank of Korea can procure within a year without shocking the foreign exchange market is between 15 billion and 20 billion dollars." He added, "I understand that the negotiation team is fully aware of the amount of foreign currency we can supply annually and is negotiating accordingly."

On the possibility of a currency swap between the Bank of Korea and the U.S. Treasury, he said, "It is not appropriate to comment as negotiations are ongoing," but emphasized, "It is widely understood that utilizing the U.S. Treasury's Exchange Stabilization Fund (ESF) at a scale of 10 billion dollars is not sufficient to resolve the 350 billion dollar U.S. investment issue."

When asked by Jin Sung-joon, a lawmaker from the Democratic Party, "Has the Bank of Korea ever considered a currency swap with the U.S. Treasury?" Governor Lee replied, "The Bank of Korea has never considered it." He added, "It seems you are referring to cases like Argentina, but currency swaps are intended for short-term liquidity and are not used for long-term investments or similar purposes."

When Park Jeong-hoon, a lawmaker from the People Power Party, asked about the feasibility of options such as an unlimited Korea-U.S. currency swap, Governor Lee responded, "I do not understand why these options (such as unlimited or Treasury currency swaps) are being discussed right now," and added, "Due to the various side effects you mentioned regarding unlimited currency swaps, I do not think the likelihood of such concerns materializing is high."

Lee Changyong, Governor of the Bank of Korea, is responding to questions from lawmakers during the National Assembly Planning and Finance Committee's audit of the Bank of Korea held at the Bank of Korea in Jung-gu, Seoul on the 20th. Bank of Korea

"Why Didn't You Buy Gold?"...Lee Chang-yong: "Will Reexamine Asset Allocation Structure"

During the audit, lawmakers from both ruling and opposition parties criticized the Bank of Korea for not actively purchasing gold despite the recent surge in gold prices.

The Bank of Korea has maintained its gold reserves at 104.4 tons since acquiring an additional 20 tons in 2013, with no further purchases. This represents about 1.2% of its foreign exchange reserves, ranking 38th in the world. International gold prices have risen by about 65% this year alone.

Lawmakers from the Planning and Finance Committee unanimously called for a more proactive stance on gold purchases. Ahn Do-geol, a lawmaker from the Democratic Party, pointed out, "As a non-reserve currency and a small open economy, countries with similar economic structures to ours, such as Taiwan and Singapore, hold 5-7% of their foreign exchange reserves in gold. If we had raised our ratio to 5%, our foreign exchange reserves would have increased by 5 billion dollars arithmetically."

Governor Lee explained that until 2023, stock prices were higher than gold, and foreign exchange reserves had been on a declining trend over the past two to three years, making it difficult to purchase new assets.

He stated, "It was reasonable for the Bank of Korea not to purchase gold for ten years after the 2013 acquisition, as stock prices rose much more than gold during that period." He acknowledged, "There is some validity to concerns that we may have missed an opportunity given the rapid rise in gold prices over the past three years," but added, "However, as foreign exchange reserves have been declining in the past three years, it was not easy to consider purchasing new assets."

Governor Lee said, "If we move into a phase of increasing foreign exchange reserves, there will be room to reconsider asset allocation. There is ongoing debate about whether the recent rise in gold prices will continue. Since this is closely related to the status of the dollar as a safe asset, we will structurally reexamine the issue." However, when asked if there were plans to increase gold reserves, he replied, "There are no plans in the short term."

Lee Changyong, Governor of the Bank of Korea, is responding to questions from lawmakers during the National Assembly Planning and Finance Committee's audit of the Bank of Korea held on the 20th at the Bank of Korea in Jung-gu, Seoul. Bank of Korea

"Bank of Korea Should Actively Participate in 'Unanimous Consent' Approach to Stablecoin Institutionalization"

Governor Lee reiterated the need for the Bank of Korea's views to be strongly reflected in the process of institutionalizing the Korean won stablecoin. In response to questions from lawmakers Ahn Do-geol and Cho Seung-rae of the Democratic Party regarding the Bank of Korea's role in stablecoin institutionalization, Governor Lee said, "Currently, under the existing legal framework, the Financial Services Commission is in charge," but stressed, "Because the stablecoin issue has a direct impact on the Bank of Korea's monetary policy, I argue that the Bank of Korea's views must be strongly reflected." He emphasized, "As with the U.S. Genius Act, I believe there should be institutional improvements that allow the Bank of Korea to participate as the responsible party through a unanimous consent approach."

He also noted that it is necessary to gather opinions on how to address the issue of internationalizing the Korean won. Governor Lee said, "In addition to the challenge of achieving both innovation and stability, our country fundamentally has not fully liberalized capital. The allowance for domestic residents to hold assets overseas is limited, and if the Korean won stablecoin is permitted, such a major institutional framework would need to change." He stressed the need to consider these structural changes as well.

Governor Lee said, "There are views that regulations on won liberalization can be maintained through blockchain technology, but there are also many difficulties in relying solely on technology, as the Bank of Korea has pointed out. I think a gradual approach, starting with a consortium led by banks, would be preferable."