🚨 BOK Governor's Key Issues Summary
Today Korean Economic News for Beginners | 2025.10.21
0️⃣ Real Estate, FX, Digital Assets Debates - Lee Says "Structural Reform Needed"
📌 Key Issues Before Monetary Policy Meeting..."Need Comprehensive Policies to Stop Market Overheating"
💬 Bank of Korea (BOK) Governor Lee Chang-yong shared his views on major economic issues at the National Assembly's Strategy and Finance Committee audit. These included responses to real estate overheating, foreign exchange market stability, and digital asset regulation. Regarding the government's October 15 real estate measures, he said including jeonse (long-term lease deposit) loans in DSR (Debt Service Ratio) calculations is necessary, but adjustments are needed to protect real users. On Korea-US currency swap discussions, he drew a clear line saying "we haven't considered it." For gold reserve expansion, he said the BOK will approach it carefully considering foreign exchange reserve conditions. On stablecoin regulation, he emphasized that the BOK must actively participate as the monetary policy authority. This audit was an important opportunity to understand the BOK's policy direction ahead of the Monetary Policy Committee meeting.
1️⃣ Easy Explanation
At the National Assembly audit, the Bank of Korea Governor explained his views on hot economic topics. Let's break down the discussions on real estate rules, foreign exchange stability, and digital assets.
First, let's talk about real estate, which got the most attention. Recently, apartment prices in Seoul and nearby areas have gone up a lot. On October 15, the government announced emergency measures. The main change is that jeonse loans will now be included in DSR calculations.
DSR stands for "Debt Service Ratio." Simply put, it's the percentage of all your loan payments (principal and interest) compared to your yearly income. For example, if you earn 50 million won per year and need to pay 20 million won in loan payments per year, your DSR is 40%.
Until now, jeonse loans weren't counted in DSR calculations. But from now on, they will be included. This means people who already have home mortgages or other loans will find it much harder to get jeonse loans. Governor Lee said "these rules are necessary to manage household debt, but we need to add protections so real users who already signed jeonse contracts don't get hurt."
The second issue was the Korea-US currency swap. A currency swap is an agreement where two countries' central banks exchange each other's currencies. For example, if the BOK makes a swap with the US Federal Reserve, Korea can borrow dollars by giving Korean won when needed. This acts as a safety net to secure dollar liquidity when the foreign exchange market is unstable.
Recently, as the won weakened and the FX market became unstable, some people argued that Korea should make a new swap agreement with the US. But Governor Lee said "we haven't considered a Korea-US currency swap" and added "our foreign exchange reserves are over $400 billion, which is enough, and we have other tools if needed."
The third issue was expanding gold reserves. Recently, international gold prices rose significantly, and gold has become popular as a safe asset. Some argued that the BOK should increase its gold holdings. Currently, gold makes up only about 1% of Korea's foreign exchange reserves, which is very low.
However, Governor Lee explained "our foreign exchange reserves have been decreasing recently, so if we buy gold, we'd need to sell other assets, which could burden the market." But he added "if FX conditions improve later, we'll consider increasing our gold holdings."
Finally, there was discussion about regulating stablecoins. Stablecoins are digital assets whose value is linked to regular currencies like dollars or won. Unlike regular cryptocurrencies, their prices don't change much, so they can be used for payments and money transfers.
The government is considering bringing stablecoins into the regulated system. Governor Lee emphasized "stablecoins can affect monetary policy, so the BOK must participate actively." He particularly expressed concern that "if won-based stablecoins are issued, they could impact money supply management."
The main message from this audit is that real estate, foreign exchange, and digital assets all need careful, comprehensive approaches rather than quick fixes.
2️⃣ Economic Terms
📕 DSR (Debt Service Ratio)
DSR is an indicator that shows what percentage of your yearly income goes to paying all your loan principal and interest.
- It's calculated by dividing the total yearly payments for all loans (mortgages, credit loans, jeonse loans) by your yearly income.
- A higher DSR means you have more debt burden compared to your income, which reduces your loan limit.
- Financial authorities use a 40% DSR limit to control excessive household debt.
📕 Currency Swap
A currency swap is an agreement where two countries' central banks agree to exchange their currencies for a certain period.
- It acts as a safety net to secure dollar liquidity when the FX market is unstable.
- The BOK made a currency swap with the US Fed during the 2008 financial crisis to overcome the crisis.
- However, currency swaps are for short-term liquidity, not for long-term investment funding.
📕 Foreign Exchange Reserves
Foreign exchange reserves are foreign currency assets held by the central bank, indicating FX market stability and international credibility.
- They consist of foreign currencies like dollars, euros, and yen, as well as gold and foreign bonds.
- Korea holds over $400 billion in FX reserves, ranking 8th in the world.
- If FX reserves decrease, the ability to defend the exchange rate weakens and it can affect the country's credit rating.
📕 Stablecoin
A stablecoin is a digital asset whose value is linked to regular currencies like dollars or won.
- Unlike regular cryptocurrencies, price volatility is low, so they can be used for payments and transfers.
- Popular stablecoins include Tether (USDT) and USD Coin (USDC).
- They can affect money supply management, so central bank supervision and regulation are needed.
3️⃣ Principles and Economic Outlook
✅ The Real Estate Regulation Dilemma and Protecting Real Users
Let's look at the structural problems with the October 15 measures and possible solutions.
First, including jeonse loans in DSR is a necessary choice for managing household debt. Korea's household debt exceeds 100% of GDP, the highest in the world. Especially, jeonse loans have a lump-sum repayment structure at maturity, creating refinancing risks. Cases of gap investment victims who can't repay loans when jeonse prices fall are increasing. Financial authorities believe jeonse loans are also debt, so they should be included in DSR to prevent excessive borrowing.
Second, but this can be a big burden for real users. When someone who already has a mortgage or credit loan tries to get a jeonse loan to move, the loan might be rejected or the limit might be greatly reduced due to DSR regulations. For example, if someone earning 60 million won per year has existing loan payments of 20 million won per year (DSR 33%) and wants a 300 million won jeonse loan, the additional interest burden might push their DSR over 40%, making the loan impossible.
Third, the "adjustments" Governor Lee emphasized mean exception rules for these real users. For example, when someone must move from their current home unavoidably, solutions could include giving a grace period or adjusting how DSR is calculated. Also, lowering jeonse loan interest rates to reduce the interest burden is another option.
Real estate regulation needs a delicate balance between market stability and protecting real users.
✅ FX Market Stability and Policy Tool Choices
Let's analyze why the BOK is taking a careful approach to currency swaps and gold reserve expansion.
First, currency swaps are for crisis response, not everyday use. The Korea-US currency swap was temporarily established during the 2008 financial crisis and 2020 COVID-19 pandemic. This was to supply emergency liquidity during severe dollar shortages. But currently, Korea's FX reserves exceed $400 billion, and the FX market isn't in an extreme situation like 2008 or 2020. Carelessly requesting currency swaps could send wrong signals to the market.
Second, expanding gold purchases requires careful consideration of timing and method. Gold is a safe asset but doesn't pay interest or dividends. Also, buying large amounts when international gold prices are at record highs risks buying at the peak. More importantly, FX reserves have been declining recently. In 2024, FX reserves decreased as the BOK sold dollars to defend the exchange rate. To buy gold in this situation, the BOK would need to sell other assets (like US Treasury bonds). This could put additional pressure on the market.
Third, various tools should be used for FX stability. Beyond currency swaps and gold reserve expansion, there are many tools like FX market intervention, macroprudential regulations, and interest rate policy. The BOK uses appropriate policy combinations depending on the situation. For example, if the won weakens severely, the BOK can intervene by selling foreign exchange, and if foreign investors' bond outflows are a concern, interest rates can be adjusted.
FX market stability should be achieved through comprehensive approaches, not a single policy.
✅ Digital Asset Regulation and Monetary Policy Challenges
Let's look at the BOK's role and future tasks in stablecoin regulation discussions.
First, stablecoins present new challenges to traditional monetary policy. If won-based stablecoins are issued on a large scale and widely used for payments and transfers, they essentially become "money" issued by private entities. This affects the BOK's monopoly on currency issuance and ability to manage money supply. For example, if 100 trillion won worth of won-based stablecoins circulate, even if the BOK adjusts the base rate, the effect on the real economy could be different.
Second, ensuring stablecoin stability is important. Stablecoins claim to guarantee 1:1 exchange with fiat currency, but verification is needed to confirm that issuers actually hold sufficient reserves. In 2023, during the Silicon Valley Bank crisis, some stablecoins' values plummeted. If won-based stablecoins lose stability, it could shock the entire financial system.
Third, the BOK must actively participate in stablecoin regulation. As Governor Lee emphasized, stablecoins aren't just digital assets but are directly related to monetary policy. Therefore, not only the Financial Services Commission and Financial Supervisory Service, but also the BOK should participate in issuance approval, reserve management, and circulation monitoring. The relationship with future central bank digital currency (CBDC) issuance should also be considered.
The central bank's role is becoming more important in the digital asset era.
✅ Future Outlook and Policy Direction
Let's forecast how the issues revealed at the audit will affect future economic policy.
First, real estate problems will be an important variable in the Monetary Policy Committee's interest rate decisions. The BOK must consider not only inflation and economic growth but also financial stability. If real estate prices continue rising, household debt increases and financial system risks grow. This makes it difficult to lower interest rates hastily. On the other hand, if the economy slows, rates should be lowered to stimulate growth, but this could push real estate prices higher, creating a dilemma.
Second, policy tools to prepare for increased FX market volatility will be strengthened. The global financial market is unstable due to the US presidential election, Fed interest rate policy, and Middle East geopolitical risks. The BOK is expected to actively use FX market intervention while pursuing long-term FX reserve accumulation and asset portfolio diversification. Gold purchases may also resume at an appropriate time.
Third, digital asset regulation will proceed carefully. Stablecoin regulation bills are being discussed in the National Assembly, but it will be difficult to reach quick conclusions due to monetary policy impacts and financial stability issues. The BOK is expected to actively participate in system design while also reviewing CBDC issuance plans.
Current economic policy challenges require medium to long-term institutional improvements rather than short-term responses.
4️⃣ Conclusion
What became clear from this audit is that real estate, foreign exchange, and digital assets are all structural problems that can't be solved with simple regulations or quick fixes. Governor Lee's emphasis on "comprehensive approaches" comes from this context.
For real estate problems, financial regulations alone won't provide fundamental solutions. Supply expansion, tax reform, and blocking speculative demand must work together. Including jeonse loans in DSR is necessary for household debt management, but careful adjustments must be made so real users don't get hurt.
For FX market stability, rather than relying on single tools like currency swaps or gold purchases, comprehensive use of FX reserve management, market intervention, interest rate policy, and macroprudential regulations is needed. Especially during times of high global financial market uncertainty, careful policy operation is more important than excessive reactions.
Stablecoin regulation is a new challenge for monetary policy in the digital age. Innovation shouldn't be excessively suppressed, but active central bank participation and supervision are needed to avoid harming financial stability and monetary policy effectiveness.
From an individual perspective, it's important to understand and respond to these policy changes. If you're planning real estate investment, you should consider stronger DSR regulations, and if you're about to sign a jeonse contract, you should check loan availability in advance. Since it's a time of high FX volatility, timing for overseas investment and currency exchange should also be carefully decided.
Ultimately, the success of economic policy depends not on short-term effects but on long-term stability. It's an important time for the government and BOK to cooperate while maintaining their independence and communicate with the market while pursuing policies.
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