The purpose of this research is to examine means to improve the loan policies of the Bank of Korea, and to evaluate the impact on inflation the changes in the loan policy of the central bank and the currency supply routes generated.
In general, after a central bank goes through the process of concentrating its force on supply of currencies and related roles, it becomes an agency that implements monetary policy. The credit rate variations between central banks and private banks are significant. Credit supplying central banks in Korea, France, and the United States are more numerous than private banking institutions.
In South Korea, the currency supply routes and lending policy—which had a pronounced impact on the establishment and development of the central bank system—can be classified into four eras:
1. The Japanese colonial era, from 1909 to 1945, during which Bank of Korea implemented loan policy. The Bank of Korea issued money and promissory notes upon approval from Japan, and the supply of promissory notes was at an annual rate of 35.3 percent.
2. After the Korean War, from 1951 to 1960, the ceiling system on the rediscount sum and loan policy were run in parallel, and funds were rated and managed conditionally by importance and urgency. Agriculture, Forestry and Fisheries, Mining, electricity generation businesses, reselling businesses, export, and military industry were run by rediscount support funds, and manufacturing for luxury consumer goods, games, and entertainment businesses could not apply for loans from financial institutions.
3. From 1961 to 1981 was the loan expansion period of the Bank of Korea for export driven growth. Companies with export contracts were able to get support from the Bank of Korea for an amount equivalent to the set rate of export expense. With this expanded management of the export finance system, the proportion of export finance in total loan amount from the Bank of Korea by deposit banks was more than annual average rate of 61.7 percent.
4. From 1982 to 1992 was the loan expansion period of the Bank of Korea for small- and medium-sized enterprises’ support and restructuring. Loan policy was managed poorly, such that related funds was used to support general funding accounts.
We can examine the currency supply routes that have affected inflation through the transition process. The higher the monetary supply of the central bank against original currency, the higher the inflation rate. However, there is no correlation between the proportion of central bank loans against original currency and the inflation rate. In the case of open market purchases and blue-chip private stock transactions, the date of maturity is fixed, so it does not affect inflation. However, when currency is issued for government bonds, monetary value is likely to depend on national competitiveness. If the country loses national competitiveness the monetary value is likely to decline as well. Currency issued by private stocks is less influenced by inflation, while currency issued by government bonds is more influenced by inflation.
The Bank of Korea should recover the full amount of special financial support in the short term, as well as reduce the scale of funds supported in the form of promissory note backed loans for small- to middle-sized businesses. In order to develop a credit society, financial companies could include large companies as rediscount targets of promissory notes, but should end dependence on rediscount bills by upward adjustment. In addition, financial companies must allow rediscount interest rates to determine bank loan interest rates by eliminating rediscount preferential rates, and help advance open market control against government and public bonds of adequate scale, so as to implement monetary and credit policies.
통화의 공급경로가 인플레에 미치는 영향(Effect of currency supply route on inflation)
현행 한국은행 대출정책에 미치는 시사점(implications for the existing loan policy of the bank of Korea)
서울 : 한국개발연구원
|Journal Title; Vol./Issue||한국개발연구:Vol. 15(Issue 4)|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Macroeconomics|
|Holding||KDI; KDI School|