Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
BOK urged to reinvent itself in digital era
By Lee Min-hyung
Governor Lee needs to set clear direction in self-reform drive
By Lee Min-hyung
Central banks across the globe are facing grave challenges, with digitization bringing fundamental changes to the economy and business ecosystem.
Traditional monetary policy medicine does not work well in containing inflation, stimulating growth or maintaining financial stability. Simply speaking, the effect of key rate policies has been weakening as technology penetration has gradually impaired monetary transmission channels.
Reforming the organizational structure and mindset is not a matter of choice but of necessity for the central banks. Those unwilling to drastically change are all but destined to lose their clout in the market
For these reasons, central banks from major economies have overhauled their organizations and strengthened digital capabilities. Many of them have already implemented new strategies under a detailed vision and roadmaps.
In contrast, the Bank of Korea (BOK) has been very insular and slow in embracing change. BOK Governor Lee Ju-yeol recently unveiled its so-called 2030 Strategy but his plan is seemingly short on substance on how to safeguard against the threat of digitization.
Market experts have said that a much-hyped self-reform drive by the BOK will be nothing more than empty words unless the bank sets a clearer and more well-defined direction for its mid- to long-term growth.
During an internal meeting Nov. 18, Governor Lee urged his staffs to embrace “digital innovation” in a pre-emptive manner to enhance competitiveness amid the rapidly-changing economic environment here and abroad.
Bank of Korea Governor Lee Ju-yeol
Lee has particularly underlined the need to deal actively with such emerging technologies as big data, artificial intelligence (AI) and blockchain.
But market experts are skeptical over whether the BOK can achieve a digital transformation in a timely manner, saying most government authorities, including the central bank, are unprepared to accept the ongoing technological paradigm shift.
“Most government organizations are busy promoting their plans to embrace the latest technologies such as big data and AI, which gain global popularity, but no detailed plans can be seen from their de facto hype,” a professor of computer science said, asking for anonymity.
The central bank is not exempt from the criticism in that the monetary authority has not shared any concrete guidelines of its digital drive, but only reiterated the need to embrace the vision.
“To be realistic, any state-run or private organizations in Korea cannot freely collect massive datasets under the current legal system, as the Personal Information Protection Act is too strict to pave the way for any research or use of the public's massive datasets,” the professor pointed out.
Without the datasets, the digital vision of the BOK can never be turned into a reality, according to him. The expert said big data is something that is constantly being updated in real time, and against the backdrop, BOK's statistics data is not big data.
“I am wondering why government agencies keep hyping up such unrealistic goals, as they do not have any specific blueprints,” he said.
The reality is different in neighboring countries such as China and Japan, according to the expert.
“China is seeking to embrace the Fourth Industrial Revolution with a focus on the manufacturing industry, and the Japanese government is pushing a robot-driven strategy. The U.S. is focusing its development on cloud computing. But Korea does not have any such detailed plan,” he said.
On top of that, the BOK does not look as busy as its overseas counterparts in terms of pushing the digital drive.
The People's Bank of China, the BOK's Chinese counterpart, recently teamed up with tech company Huawei in developing a blockchain financial infrastructure.
Such a proactive movement is rarely seen at the BOK, which still sticks to its traditional role of inflation targeting and the control of liquidity in the economy.
On Nov. 25, the BOK announced it had recruited 59 staff, as part of its annual open recruitment.
Contrary to Lee's outward pledge to push for a digital transformation, more than 70 percent of the new employees majored in economics and business administration. Only five of them, or 8.5 percent, studied computer science as a major.
An official from the BOK said the central bank is in the preparatory phase of embracing a digital transformation.
“We have a data analytics team whose major role is to analyze datasets,” said the official who declined to comment on details of the specific visions for the central bank's digital drive.
Sohn Sung-won, an economics professor at Loyola Marymount University in Los Angeles, also concurred over the importance of technology for the digital reform of central banks.
“Technology knows no borders,” he said. “A new technology could pop up anywhere and anytime. This is the reason the Bank for International Settlement has set up an innovation center in order to identify new technology affecting central banking. The center will explore the digital world and new players.”
He also underlined the importance of keeping a balance between technology and security.
“Whatever the new technology is, the central banks must balance innovation and stability,” he said. “Central banks must also ensure that people's hard-earned savings are protected in the new technology-enhanced infrastructure,” he added.
Leadership change
Calls are also growing for the BOK to enable its leader to inject fresh momentum for change into the organization.
“It is realistically impossible for the BOK to make drastic internal reform when the incumbent governor, whose term has been extended, remains in office,” said a financial expert who is familiar with policies pushed by the central bank.
“It has been more than five years since Lee took office, but it is hard to list any outstanding achievements in currency policy or such a digital drive,” he said.
The most effective way to incorporate the wind of change into any organizations is to change its leadership, he added.
“Even if things are slowly getting better, Korean organizations are characterized by their hierarchical culture,” the expert argued, adding the BOK was no exception.
To make the reform drive more fruitful, an external expert as new leader of the BOK would be the ideal, he said.
“Any officials within the circle of the BOK may have already been accustomed to the culture of authority,” he said. “But things will be different once a non-BOK official is in power and exerts leadership. The scenario will be one of the best and fastest ways for the bank to achieve its goal of drastic and timely reform,” the expert concluded.