2017 Annual Report

*Annual(2017)01-앞1~15 2018.6.
25 5:47 PM 페이지i 001 Adobe PDF

*Annual(2017)01-앞1~15 2018.6.25 5:47 PM 페이지1 001 Adobe PDF
2017
Annual Report
2018. 3
「The Bank of Korea Act」

Article 102(Publication of the Annual Report)
① The Bank of Korea shall, within three months after the end of each fiscal year, submit to the government
its annual report and publish it. This annual report shall outline its business status, its monetary policy and
the government’s foreign exchange policy, and analyze the economic and financial situation of the
country during the fiscal year.
② The annual report in Paragraph(1) shall be approved by a resolution of the Monetary Policy Board.
Purpose of Establishment
of the Bank of Korea
•To contribute to the sound development of the national

economy by pursuing price stability through the formulation and
implementation of efficient monetary and credit policies
•To pay attention to financial stability in carrying out monetary
and credit policies
*Annual(2017)01-앞1~15 2018.6.25 5:47 PM 페이지i 001 Adobe PDF
Preface by the Governor
The Bank of Korea, as the central bank of the Republic of Korea, has dedicated its utmost
efforts to achieving price and financial stability through its monetary and credit policies, and
thereby served as a foundation for sound development of the national economy.
In 2017 the Korean economy overcame unfavorable conditions such as the deteriorating
trade environment and escalating risks related to North Korea, and recovered to a growth rate
in the 3 percent range for the first time in three years since 2014, thanks to the global trend of
economic recovery and to the Bank’s accommodative monetary policies. The demand-side
inflationary pressures remained moderate, but prices rose closer to the inflation target of 2 per-
cent under the influence of supply-side factors including the rising international oil prices.
Despite instances of greater volatility due to deepening uncertainties, the domestic financial and
foreign exchange markets remained generally stable in the second half of the year.
Under these financial and economic conditions, the Monetary Policy Board raised the Base
Rate by 0.25 percentage point in November, to adjust the degree of monetary policy accom-
modation under which the rate had been set at its lowest-ever level. This decision was made
in consideration of the fact that, given the steady pace of growth projected for the Korean
economy, the accommodative stance of monetary policy would effectively increase if the Base
Rate remained at the same level, and subsequently result in a greater aggregate risk of finan-
i
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cial imbalances. In terms of financial stability, the Bank devoted its utmost efforts to stabilizing
the markets in response to potential factors causing instability, while also bolstering its multi-
layered foreign exchange safety net by extending its currency swap agreements with Australia
and China and concluding a new standing currency swap contract with Canada, a key curren-
cy country. The Bank also increased the frequency of its Financial Stability Meetings to four
times a year so as to strengthen its system for the monitoring of financial stability, and to tack-
le pending issues took proactive actions including the formulation of a comprehensive plan to
deal with household debt and monitoring of the subsequent effects.
In addition, to promote the success of the Olympic Winter Games PyeongChang 2018 the
Bank issued a set of commemorative coins and Korea’s first commemorative banknotes, and
allowed some of its regional branches to resume their currency supply and demand functions
for convenient use of currency. Meanwhile, with the commencement of construction of new
integrated annex buildings and the remodeling of its main building, the Bank’s headquarters
were relocated to a temporary facility on Taepyeong-ro. In addition, related to its recruitment
of new employees the Bank strengthened its blind screening system.
The Korean economy is expected to continue its trend of robust growth, under the influence
of the ongoing global economic recovery and the government’s expansion of it fiscal expendi-
tures. However, there are concerns about diminished economic growth stemming from the neg-
ative effects on economic sentiments due to external uncertainties including the global spread of
protectionism and major countries’ normalizations of their monetary policies, as well as domes-
tic structural issues including the declining birth rate and population aging.
The Bank will implement its monetary policy this year to ensure the continuation of solid
economic growth and stabilization of the inflation rate at the target level from a medium-term
perspective. In addition, while paying particular attention to the trends of growth, inflation
and financial stability, the Bank will cautiously determine whether to further adjust the extent
of its accommodative monetary policy. It will also devote steady efforts to strengthening its
communication with the public for the purpose of enhancing the transparency and predictabil-
ity of its monetary policy.
This annual report provides an analysis of the financial and economic conditions in Korea, and
a systematic presentation of the conduct of business and management conditions at the Bank of
Korea during the year 2017. It is our hope that this report will help to broaden the public’s
understanding of the Bank of Korea’s roles and the situation facing the Korean economy.
March 2018
Lee, Juyeol
Governor
The Bank of Korea
ii
*Annual(2017)01-앞1~15 2018.6.25 5:47 PM 페이지iii 001 Adobe PDF
Monetary Policy Board
Chairman Lee, Juyeol

Member Hahm, Joon-Ho
Member Lee, Il Houng
Member Cho, Dongchul
Member Koh, Seung Beom
Member Shin, Inseok
Member Yoon, Myun-Shik
*Annual(2017)01-앞1~15 2018.6.25 5:47 PM 페이지iv 001 Adobe PDF
*Annual(2017)01-앞1~15 2018.6.25 5:47 PM 페이지v 001 Adobe PDF
Contents
I. Overview of the Bank of Korea ・

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II. Economic Trends ・

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1. Real Economy ・
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III. The Bank of Korea’s Conduct of Its Business ・

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1. Medium-term Strategies ・
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3. Efforts to Enhance Financial Stability ・
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4. Currency Issuance ・
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5. Payment and Settlement Business ・
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6. Foreign Exchange and International Cooperation Affairs ・
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8. Treasury and Securities Business ・
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9. External Communications ・
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IV. Management Status ・

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Appendix ・
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List of Tables
<Table I- 1> Number of the Monetary Policy Board meetings ・

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<Table II- 1> World economic growth ・

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<Table II- 2> World trade growth(Goods and Services)・
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<Table II- 3> Economic growth rate ・
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<Table II- 4> Final Consumption ・
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<Table II- 5> Fixed capital formation ・
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<Table II- 6> Growth rate by kind of economic activities・
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<Table II- 7> Growth rate of manufacturing by sector ・
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<Table II- 8> Growth rate of services by sector ・
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<Table II- 9> Employment–related indicators ・
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<Table II-10> Wage–related indicators ・
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<Table II-11> CPI inflation & Core inflation ・
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<Table II-12> Rate of increase in housing prices and housing leasehold
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<Table II-13> Summary table of current account ・
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<Table II-14> Exports by major item ・
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<Table II-16> Services account ・
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<Table II-17> Primary and secondary income accounts ・
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<Table II-18> Major indicators by region ・
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<Table II-19> Major international interest rates and risk premia ・
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<Table II-20> Banks’ weighted average interest rates on loans and deposits ・ 28
<Table II-21> Financial institutions’ deposits ・
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<Table II-22> Financial institutions’ loans ・
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<Table III- 1> Medium-term strategies in 2017 ・

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<Table III- 2> Loans of the Bank of Korea ・
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<Table III- 3> Deposits with the Bank of Korea ・
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<Table III- 4> Details of Bank Intermediated Lending Support
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<Table III- 5> The Scale of Liquidity Adjustment of

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<Table III- 6> Main communication activities by members of the
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<Table III- 7> The Bank of Korea’s on-site joint examination ・
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<Table III- 8> Current Situation of Korea’s Currency Swap
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<Table III- 9> Banknotes and coins issued, withdrawn and
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<Table III-11> Supply of Intraday liquidity ・
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<Table III-13> Accumulated Coins through Pilot Project in 2017・
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<Table III-14> Composition of foreign exchange reserves ・
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<Table III-15> Percentage shares in foreign assets ・
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<Table III-17> Main themes of Asia-Pacific region conferences ・
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<Table III-18> BOK-Knowledge Partnership Program ・
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<Table III-19> Central Banking Study Program ・
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<Table III-20> Total subscriptions and contributions to international
financial institutions ・
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<Table III-21> Loans to IMF ・
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<Table III-22> Receipts and disbursements of Treasury funds ・
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<Table III-23> Status of treasury agencies and receipts value ・
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<Table III-24> Treasury network transactions ・
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<Table III-25> Ceilings on loans to the government ・
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<Table III-26> Loans to the government・
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<Table III-27> Issuance and Redemption of Treasury Bonds ・
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<Table III-28> Issuance and Redemption of Treasury Bills ・
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<Table III-29> Securities custody services of BOK ・
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<Table III-30> Features of BOK’s government fund management
business ・
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<Table III-31> Fund raising(operation) amount ・
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<Table III-32> The number of visitors of the Bank’s main website ・

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<Table III-33> Social media operated by BOK ・
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<Table III-34> The number of visitors of the Bank of Korea
Money Museum ・・・・・
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<Table III-35> Complaint handling of the Bank of Korea ・
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<Table III-36> Results of Opinion Survey on the Bank of Korea ・
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<Table III-37> On-site economic education performance ・
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<Table III-38> The number of members of the BOK’s economic
education website ・
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<Table III-39> BOK Economics Courses on OUN TV ・
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<Table IV- 1> Number of new hires per year ・

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<Table IV- 2> Number of female managers in the Bank of Korea ・
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<Table IV- 3> Balance Sheets ・
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<Table IV- 4> Statements of Income ・
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<Table IV- 5> Statements of Changes in Equity ・
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<Table IV- 6> Statements of Appropriation of Retained Earnings ・
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List of Figures
<Figure I- 1> The first Monetary Policy Board Meeting ・

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<Figure I- 2> Monetary Policy Board Meeting ・
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<Figure I- 3> Members of the Monetary Policy Board ・
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<Figure I- 4> Executive officers and auditor ・
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<Figure I- 5> Organization ・
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<Figure II- 1> International oil prices ・

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<Figure II- 2> Stock Prices of major advanced economies and
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<Figure II- 3> Major exchange rates ・
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<Figure II- 4> Major market interest rates and term-spread・
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<Figure II- 6> KOSPI and KOSDAQ index ・
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<Figure II- 7> Korean won exchange rates ・
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<Figure II- 8> USD/KRW exchange rate volatility ・
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<Figure II- 9> Foreign exchange swap rate and currency swap rate ・
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<Figure III- 1> Inflation target and CPI ・

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<Figure III- 2> Bank of Korea Base Rate ・
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<Figure III- 3> Bank Intermediated Lending Support Facility Ceiling and
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<Figure III- 4> The share in the use of the means of open market
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<Figure III- 5> Monetary policy press conference ・
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<Figure III- 6> Visit to PyeongChang Winter Olympics Organizing Committee
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<Figure III- 7> Signing Ceremonies of Bilateral Currency Swap Agreement
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<Figure III- 8> Commemorative Coins for the Olympic (Second Set) and
Paralympic Winter Games PyeongChang 2018 ・・・・
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<Figure III- 9> Commemorative coins of Korean National Parks ・
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<Figure III-10> Counterfeit banknotes detected ・
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<Figure III-11> Winners of UCC Currency Protection Campaign Contest ・
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<Figure III-12> Destruction of banknotes and coins ・

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<Figure III-13> The Olympic Winter Games PyeongChang 2018
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<Figure III-14> BOK-Wire+ funds transfer values ・
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<Figure III-15> 2017 BOK International Conference ・
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<Figure III-16> Relationship between System of National Accounts and
Five Main National Accounts・・・・・
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<Figure III-17> 2017 IARIW–BOK Special Conference ・
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<Figure III-18> 2017 Joint forum by the Korean Statistical Society
- the Bank of Korea ・
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<Figure III-19> Awards of the Bank of Korea Storytelling Competition ・
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<Figure III-20> Exhibitions on Art Collection and Turkish currency from
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<Figure III-21> Community service of the Bank of Korea ・
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<Figure III-22> Signing Ceremony of MOU with Seoul National University ・ 97
<Figure III-23> Open Lectures in OUN Studio ・
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<Figure III-24> “A Useful Financial Plan for New Employees” ・
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<Figure III-25> “Retirement Planning and Asset Management” ・
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<Figure IV- 1> Operational Risk Management Structure of

the Bank of Korea ・
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<Figure IV- 2> Flow Chart of the BOK’s Operational Risk Management ・
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<Figure IV- 3> Newly recruited staff in 2018 ・
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<Figure IV- 4> Integrity Ombudsman Meeting ・
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<Figure IV- 5> Bird’s eye view of the BOK’s new headquarters building ・
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List of Boxes
<Box III- 1> Korea’s Currency Swap Agreement Signings with Canada and
Switzerland, and Their Significance・
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<Box III- 2> Issuance of the Olympic Winter Games PyeongChang 2018
Commemorative Banknote ・・・・
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<Box III- 3> Results of 2017 Opinion Survey on the Bank of Korea ・
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<Box III- 4> Diversification of Economic Education Channels ・
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1. History and Mission 1.5 billion won, but was later reorganized in
1962 as a non-capital special organization in
I. Overview of the Bank of Korea

accordance with the first revision of the Bank
The Bank of Korea was established in of Korea Act.
June 12, 1950 following the passage of the At the time of its enactment, the Bank of
Bank of Korea Act on May 5 of that year, Korea Act specified the Bank’s role as the
to serve as the central bank of Korea with central bank in devising and implementing
the purposes of stabilizing the value of the monetary, credit and foreign exchange poli-
national currency, promoting the soundness cies. In 1962, however, the Act was revised
of the banking and credit systems, and in a direction that enabled the Bank to
1. History and Mission

developing the Korean economy. This took actively support the government-led eco-
place against a backdrop of hyperinflation nomic growth initiatives. Its top decision-
and economic turmoil in the years immedi- making body, the Monetary Policy Board,
ately after Korea’s liberation from Japan. was accordingly renamed the Monetary
The Bank began initially as a government- Board of Korea, while the number of its
invested organization with paid-in capital of government-nominated members increased
<Figure I- 1> The first Monetary Policy Board Meeting

(June 5, 1950)
Source: The Bank of Korea.
3
significantly. In addition, most of its func- Minister of Finance and Economy to the
tions related to the formulation of foreign Governor of the Bank. However, the author-
exchange policy and management of the for- ity to supervise banks was moved from the
eign exchange reserves were transferred to Bank to a newly-established joint financial
the government. supervisory institution. The 2003 revision of
From the late 1980s, in line with the pro- the Act meanwhile stipulated the operation
motion of financial liberalization, there were of inflation targeting from a medium-term
active discussions of expanding the central perspective, while the Bank was delegated
bank’s role in maintaining price stability as the additional functions of oversight and
well as its neutrality, leading to amendments monitoring of the payment and settlement
of the Bank of Korea Act in 1997 and in systems. In addition, the Senior Deputy
2003. The reforms in the 1997 amendment Governor of the Bank was given the position
included the introduction of an inflation tar- of ex-officio member of the Monetary Policy
geting regime and restoration of the name Board, and the portion of the budget subject
Monetary Policy Board , while all Board to prior government approval was narrowed
members were given the positions of stand- from encompassing all expenditures to cov-
ing members. In addition, the position of ering only expenditures classified as salary.
Board chair was transferred from the The global financial crisis provided an
<Figure I- 2> The Monetary Policy Board Meeting

(August 31, 2017)
4
impetus for accelerated discussions of legisla-

tive amendments to strengthen the Bank’s

function of financial stabilization, so as to
establish conditions to facilitate the preven-
tion of financial instability and the imple-
mentation of swift countermeasures in
response to financial crises. This led to
another revision of the Bank of Korea Act
in 2011. The revised Act stipulates the pur-
pose of the Bank as the promotion of price
1. History and Mission

stability through the formulation and imple-
mentation of effective monetary policy, with
a focus on financial stability in the process.
The Act thus states that the Bank, being in
charge of monetary policy, has a mandate
for financial stability alongside its primary
objective of price stability. Under the revi-
sion of the Act in 2012, it was then stipulat-
ed that candidates for the post of Governor
of the Bank must pass through a National
Assembly confirmation hearing process prior
to appointment.
5
<Figure I- 3> Members of the Monetary Policy Board

2. Organization (As of December 31, 2017)
Lee, Juyeol
(Governor of the Bank of
Korea, April 1, 2014~)
The Bank of Korea’s leadership consists of <Career background>
-Director General, Monetary
Policy Dept., BOK
the following: the Monetary Policy Board, -Deputy Governor, BOK
-Senior Deputy Governor, BOK
which deliberates and decides on matters
related to monetary policy and the opera-
Hahm, Joon-Ho
tions of the Bank; the executive body, com- (Recommended by the Chairman of
the Korea Federation of Banks, May
prising the Governor, the Senior Deputy 13, 2014~)
<Career background>
Governor, the Deputy Governors, the head -Assistant Professor, Department of Economics,
University of California, Santa Barbara
-Research Fellow, KDI
office divisions, domestic branches, etc.; and -Professor, Graduate School of
International Studies, Yonsei University
the Auditor, whose role is to regularly audit
Lee, Il Houng
the Bank’s business operations. (Recommended by the Governor of
the Bank of Korea, April 21, 2016~)
<Career background>
-IMF Chief Resident Representative in China
-Ambassador for International
Cooperation and G20 Sherpa
A. Monetary Policy Board -President, Korea Institute for
International Economic Policy
Cho, Dongchul
The Monetary Policy Board serves as the (Recommended by the Minister of
Strategy and Finance, April 21,
Bank of Korea’s top decision-making body, 2016~)
<Career background>
and maintains the authority to deliberate -Assistant Professor, Texas A&M University
-Chief Economist, Korea Development Institute
and decide on matters of monetary policy -Professor, KDI School of Public Policy and
Management
and the operations of the Bank. The Board
Koh, Seung Beom
is composed of seven members, including (Recommended by the Chairman of
the Financial Services Commission,
the Governor and the Senior Deputy April 21, 2016~)
<Career background>
Governor of the Bank as ex-officio members -Director, Supervision Policy Division, FSC
-Secretary General, FSC
as well as five appointed members. The five -Standing Commissioner, FSC
appointed members are individuals with sub-

Shin, Inseok
stantial experience or outstanding expertise (Recommended by the Chairman of
the Korea Chamber of Commerce and
concerning finance, economics or industry, Industry, April 21, 2016~)
<Career background>
who are appointed by the President of -Associate Fellow, Korea Development Institute
-Professor, College of Business
Korea on the recommendation of pertinent Administration, ChungAng University
-President, Korea Capital Market Institute
organizations1) to serve as standing members
of the Board.2) Board members serve four- Yoon, Myun-Shik
(Senior Deputy Governor of the
Bank of Korea, Aug. 21, 2017~)
year terms, with the exception of the Senior <Career background>
-Chief Representative, Frankfurt
Deputy Governor whose term is three years, Representative Office, BOK
-Director General, Monetary Policy
and are eligible for reappointment.3) The Dept., BOK
-Deputy Governor, BOK
Governor also serves as the Chair of the
1) Recommendations are put forward by the Minister of Strategy and Finance, the Governor of the Bank of Korea, the Chairman of the Financial
Services Commission, the Chairman of the Korea Chamber of Commerce of Industry, and the Chairman of the Korea Federation of Banks.
2) Following the revision of the Bank of Korea Act on December 31, 1997 (enforced on April 1, 1998), all appointed members were given the
positions of standing members, in contrast to their previously temporary roles, so as to enhance their accountability for and expertise on
monetary policy.
3) The Governor and the Senior Deputy Governor of the Bank of Korea may be reappointed only once each to serve a consecutive term.
6
Board. The Chair represents the Monetary <Table I- 1> Number of the Monetary Policy
Board Meetings
Policy Board and presides over Board meet- (number)

ings. If the Chair is unable to conduct his or Consul- Deliber-
Year Plenary Total
her duties owing to unavoidable circum- Regular Ad-hoc tations ations
stances, a member appointed in advance by 2015 26 24 2 94 13 133
2016 27 24 3 89 15 131
the Board serves as acting chair.
2017 26 24 2 731) 15 114
The Board reviews and resolves decisions
Note: 1) The annual number of sessions held for determining the
regarding the Base Rate, the issuance of monetary policy direction reduced from 2017.
Bank of Korea notes, loan and deposit poli- Source: The Bank of Korea.
cies, open market operations, payment and
2. Organization
settlement, and inspections of financial insti- The Board announces the dates of its ple-
tutions. It also decides on general issues con- nary meetings in advance every year. With
cerning the management of the Bank, the aim of securing an adequate perspective
including its budget, settlement of accounts, for the determination of monetary policy
organizational framework, staff remunera- and strengthening the policy linkage with its
tion policy, etc. Except in special cases, reso- economic forecasts, the Board from 2017
lutions are adopted through simple majority reduced the annual number of sessions held
votes among members present at meetings to determine the monetary policy directions
requiring the attendance of at least five from twelve to eight sessions per year, with
members as the quorum. the remaining four sessions devoted to
Board plenary meetings are divided into Financial Stability Meetings. At its other
regular meetings, normally scheduled on the regular meetings the Board deliberates and
Thursdays of the second and fourth weeks of decides on the Bank’s lending and deposit
every month, and ad hoc meetings convened policies and on matters concerning its
by the Chair if deemed necessary by the inspections of financial institutions, as well as
Chair or at the request of at least two mem- on general issues related to management of
bers. the Bank, including its budget and settle-
In 2017, the Board held 26 plenary meet- ment of accounts and its organizational
ings, consisting of 24 regular meetings and framework. The minutes of each Board ple-
two ad hoc meetings. It in addition held 73 nary meeting are recorded and stored in
consultation meetings for purposes such as written form. In addition, in order to
exchanges of opinions among members on strengthen the transparency and account-
financial and economic conditions, discus- ability of the Bank’s monetary policy, the
sions of major current issues and preliminary minutes of the meetings to determine its
deliberations on items to be proposed to the monetary policy decisions are made public
plenary meetings, as well as 15 meetings for on the first Tuesday after the passage of two
deliberation on the Bank’s budget and settle- weeks since a meeting. In particular, the
ment of accounts (drafts). decisions on the monetary policy directions
are announced in press releases immediately
after the meetings.
7
B. Executive Officers and <Figure I- 4> Executive officers and auditor

Auditor (As of December 31, 2017)
The executive officers of the Bank of Governor
Korea include the Governor, the Senior Lee,

Juyeol
Deputy Governor, and five Deputy (April 1, 2014~)
Governors. The Governor is appointed to a
four-year term by the President of Korea
Senior Deputy
following deliberation by the cabinet and a Governor
National Assembly confirmation hearing,4) Yoon,
and may be reappointed once to serve a Myun-Shik
(Aug. 21, 2017~)
consecutive term. The Senior Deputy
Governor is chosen by the President for a
Deputy
Deputy
three-year term upon the Governor’s recom- Governor
Governor
mendation, and may also be reappointed Lim,
Kim,
Hyoung
once to a consecutive term. As Chair of the Minho
Joon
(Jan. 16, 2015~)
Monetary Policy Board, the Governor par- (May 9, 2016~)
ticipates in the Board’s decision-making

process and executes the monetary policy set Deputy Deputy
Governor Governor
by the Board, while exercising the authority Huh, Jeon,
granted to him or her by the Bank of Korea Jin Ho Seung-Cheol
(July 16, 2016~) (July 16, 2016~)
Act and other legislation as head of the
Bank. The Governor is also obligated to
notify the Board of matters requiring its Deputy
Governor
attention, and to provide it with data and Shin,
opinions necessary for its deliberation and Ho Soon
(Sep. 26, 2017~)
decision-making processes. The current
Governor, Lee Juyeol, was appointed on
April 1, 2014.
The Senior Deputy Governor, as a mem- Auditor
ber of the Monetary Policy Board, partic- Ha,
Seong
ipates in the process of decision-making by (June 13, 2015~)
the Board alongside the Governor, and
assists the Governor in all matters concern- Source: The Bank of Korea.
ing the Bank. If the Governor is unable to

conduct his or her duties owing to unavoid-
able circumstances, the Senior Deputy
4) Required since April 22, 2012 pursuant to the ninth revision of the Bank of Korea Act, a National Assembly confirmation hearing was held for
Lee Juyeol, the first Governor of the Bank to be appointed after the revised Act entered into effect.
8
Governor serves as acting Governor. accounts, coordinates functions among

The Deputy Governors are chosen by the departments, coordinates and integrates the

Governor, and serve three-year terms to activities of the domestic branches and over-
assist the Governor and the Senior Deputy seas representative offices, and conducts
Governor. research on the regional economies. It also
The Bank employs one Auditor, who is oversees management of the Monetary
appointed by the President upon the recom- Policy Board meeting minutes and regula-
mendation of the Minister of Strategy and tions.
Finance and also serves a three-year term.
The Auditor regularly monitors the Bank’s Communications Department
2. Organization
operations and reports the findings to the Coordinates and integrates communication
Monetary Policy Board. activities including the collection of internal
and external opinions, performs PR activities
including operation of the Bank of Korea
C. Departmental Organization
Money Museum, manages information
and Responsibilities materials, prepares the Annual Report, and
provides economic education to the general
As of the end of 2017 the Bank of Korea public.
has 17 departments and nine sub-depart-
ment offices in its headquarters, with a sub- Information Technology Department
ordinate structure of 18 divisions and 143 Provides information technology services
teams (including six research centers). There including development and operation of the
are 16 domestic branches of the Bank across Bank’s computer systems, the introduction
Korea, supported by seven regional econo- and maintenance of its electronic data-pro-
my research divisions and 54 teams. There cessing equipment, etc.
are also five overseas representative offices in
operation. As of the end of 2017 the num- Human Resources & Administration
ber of the Bank’s employees stood at 2,373.5) Department
Administers the management and develop-
The functions of the individual department of human resources, the delivery of
ments, branches, etc. are as follows: wages and welfare benefits, the Bank’s real
estate and facilities management, security,
Planning & Coordination Department etc.
Develops and promotes management
strategies, manages operational risk, man- The Bank of Korea Academy
ages the organization and its human Provides professional education and train-
resources, formulates the budget and settles ing for the Bank’s employees.
5) This figure excludes 13 persons, including the Governor, the members of the Monetary Policy Board (including the Senior Deputy Governor),
the Executive Officers, and the Auditor.
9
Research Department tary and credit policy; and prepares the

Conducts analyses of macroeconomic Monetary Policy Report.
trends and prospects, research on industrial
trends and policies, and analyses of employ- Financial Markets Department
ment and prospects; suggests the inflation Implements monetary policy through
target; performs related research and devel- open-market operations; analyzes and fore-
opment; and analyzes econometric models. casts monetary conditions and interest rates;
It also handles work related to the analysis and analyzes financial market and corporate
and forecasting of overseas economic trends. finance trends.
Economic Statistics Department Payment & Settlement Systems

Organizes, analyzes, and produces eco- Department
nomic statistics on the national income, Supervises the operation, management
money and finance, the balance of pay- and monitoring of the payment and settle-
ments, and prices; prepares the flow of funds ment system; carries out research and stud-
charts and input-output tables; and conducts ies on the payment and settlement systems;
business management analyses. It also evalu- conducts planning and research for electron-
ates the quality of the Bank’s statistics and ic finance; promotes financial informatiza-
operates the Economic Statistics System tion; and oversees tasks related to loans and
(ECOS). deposits, operation of the national treasury,
securities, and funds.
Financial Stability Department
Carries out the analysis and comprehen- Currency Department
sive evaluation of financial stability condi- Carries out the issuance, distribution and
tions; measures, analyzes and develops mod- control of currency, as well as research and
els related to systemic risks; analyzes macro- investigation on currency and banknote
prudential policy instruments and their issuance systems. It also handles matters
transmission mechanisms; conducts research related to mechanization of the banknote
on banks and non-bank financial institutions; issuance process.
performs research on the overall financial
system; and prepares the Financial Stability International Department
Report. It also conducts management analy- In charge of planning, research and analy-
sis and inspections of financial institutions. sis in connection with foreign exchange and
international finance. It provides services
Monetary Policy Department related to the foreign exchange markets and
Drafts the Bank’s monetary policy; plans exchange rates; manages the foreign reserves
and implements specific policy measures; and foreign debt; reports on foreign
analyzes the conditions for and effects of exchange transactions and provides the rele-
monetary policy; conducts research and vant follow-up management; monitors and
studies on pending issues related to mone- examines foreign exchange transactions; and
10
operates the foreign exchange computer net- eign currency assets of the Bank of Korea.
work.

<Figure I- 5> Organization
International Affairs Department
Carries out planning and research related
Governor
to international cooperation; handles
exchanges with international financial insti- Senior Deputy Auditor
tutions and central banks; and arranges Governor
financial cooperation.
Deputy Governor
2. Organization
Reserve Management Group Departments(16)
Audit
Department
Conducts planning for the Bank’s foreign
Regional Branches(16)
currency asset management, manages the
Overseas Representative Offices(5)
overseas operations and risks of its foreign
currency assets, and analyzes their manage-
ment performances.
Economic Research Institute

Oversees medium- to long-term research
on currency and finance, financial systems,
international banking, international trade,
macroeconomics, industry, labor, and the
North Korean economy, while engaging in
research exchanges with other countries.
Audit Department
Audits the operations of the Bank of
Korea.
Regional Branches
Conduct research on the regional
economies, as well as business related to cur-
rency supply and demand, the receipt of
Treasury funds, and securities management.
Overseas Representative Offices

Undertake research on finance in and the
economies of their host countries and neigh-
boring regions of interest; information gath-
ering; and overseas management of the for-
11
1. Real Economy International Oil Prices Rise to 60 Dollars-

per-Barrel Level
A. Global Economy International oil prices (Dubai crude basis)

fell to the lower- to mid-40 dollars-per-barrel
Strengthening Growth Momentum in level during the first half, affected by
II. Economic Trends

Global Economy increased shale oil production. In the second
half they surpassed 60 dollars per barrel,
The rate of growth in the global economy however, driven by increased global
accelerated in 2017. Among advanced coun- demand, by the re-extension of the agree-
tries, the economies of the U.S. and the euro ment on cuts in oil production,6) and by
1. Real Economy
area exhibited robust growth driven mainly political instabilities in the Middle East.7)
by strong domestic demand, while Japan also
saw favorable growth owing to increases in <Figure II- 1> International oil prices
(Monthly average)
investment and exports. Emerging economies
(dollar/barrel) (dollar/barrel)
witnessed stronger growth also, as China and 80 80
Dubai
the ASEAN-5 countries showed favorable Brent
WTI
movements in consumption and exports and
Brazil and Russia shifted to positive growth 60 60
thanks to increases in international raw
materials prices.
<Table II- 1> World economic growth1) 40 40
(%)
2015 2016 2017e

World 3.4 3.2 3.7
20 20
Advanced 2.2 1.7 2.3 2015 2016 2017
U.S. 2.9 1.5 2.3 Source: Bloomberg.
Euro area 2.1 1.8 2.4

Japan 1.4 0.9 1.8 Growth Rate in World Trade Rises
Emerging 4.3 4.4 4.7
Considerably
China 6.9 6.7 6.9
Brazil -3.5 -3.5 1.1
Russia -2.5 -0.2 1.8
The rate of growth in world trade (volume
India2) 8.0 7.1 6.7 basis) jumped significantly compared to that
ASEAN-53) 4.9 4.9 5.3 in 2016, owing to the strengthening trend of
Notes: 1) Based on figures published by the IMF and national recovery in global investment and to expan-
authorities.
2) Based on fiscal year(April 2016~March 2017 for 2016)
sions in import demand in China and natur-
3) Indonesia, Thailand, Malaysia, Philippines, Vietnam. al resource-exporting countries.
Sources: IMF, national authorities.
6) The 14 members of the Organization of the Petroleum Exporting Countries (OPEC), along with 10 non-OPEC oil producers, agreed at the
regular OPEC general meeting on November 30, 2017 to extend their agreement to cut oil output from the end of March 2018 through the
end of 2018.
7) Political instabilities in the Middle East have intensified, due to the fierce confrontation between the Iraqi central government and the Kurds
since the holding of an independence referendum for Iraqi Kurdistan on September 25, 2017, and to the U.S. announcement on October 13,
2017 of its intention to not recertify the Iran nuclear agreement.
15
<Table II- 2> World Trade Growth(Goods and Services) Looking at the components of demand, as
(%) the rate of growth in government consump-
2015 2016 2017e tion slowed while private consumption con-
World Trade Growth1) 2.8 2.5 4.7 tinued to improve, expenditures for final
Advanced2) 3.7 2.1 3.4
consumption increased by 2.8 percent year-
(U.S.) 2)
6.2 0.7 4.1
on-year. Despite the limited improvement in
(Euro area)2) 3.7 2.7 2.9
(Japan)2) 0.2 -0.1 3.1 real purchasing power due to the rise in
Emerging2) -1.1 0.5 6.5 inflation, private consumption showed mod-
(China)2)3) -1.8 3.1 9.5 est growth of 2.6 percent, on the back of a
Notes: 1) Based on figures published by the IMF. notable improvement in consumer sentiment
2) Import volume growth(Goods).
3) Average of monthly(Year-on-year) trade growth for 2017. and of government policies including supple-
Sources: IMF, CPB, CEIC.
mentary budget execution for the creation of
job opportunities.
B. Domestic Economy <Table II- 4> Final consumption1)

(Quarter-on-quarter)
(%)
2017p
2016
Year I II III IV
(1) Economic Growth
Final consumption 3.0 2.8 0.5 (2.2) 1.0(2.5) 1.0 (3.0) 0.9 (3.5)
(Private) 2.5 2.6 0.5 (2.1) 1.0(2.4) 0.8 (2.6) 1.0 (3.4)
Stronger Growth in Domestic Economy (Government) 4.5 3.4 0.6 (2.4) 1.2(2.8) 1.9 (4.3) 0.5 (4.1)
Note: 1) Figures in parentheses are year-on-year rates.

The Korean economy recorded a 3.1 per- Source: The Bank of Korea.
cent rate of GDP growth (in real terms) in

2017, higher than the 2.9 percent figure in Fixed investment grew by 8.6 percent
2016, as fixed investment showed buoyancy over the previous year, owing to upswings
centering around facilities investment. in construction and facilities investment.
Construction investment, although it turned
<Table II- 3> Economic growth rate1)
sluggish as the end of 2017 approached,
(%) ended up recording a year-on-year increase
2017p of 7.6 percent, led mainly by building con-
2016
Year I II III IV
struction. Facilities investment jumped by
G D P 2.9 3.1 1.0 (2.9) 0.6 (2.8) 1.4 (3.8) -0.2 (2.8)
Final consumption 3.0 2.8 0.5 (2.2) 1.0 (2.5) 1.0 (3.0) 0.9 (3.5)
14.6 percent, thanks to expanded investment
Fixed capital formation 5.6 8.6 3.6 (11.0) 1.8(10.0) 0.9 (9.2) -1.2 (5.0) in the IT sector in line with the boom in the
Changes in inventories 0.0 0.4
2)
0.3 (0.4) 0.2 (0.4) -0.7 (0.0) 0.8 (0.7) global semiconductor market. Investment in
Exports 2.6 1.9 2.1 (3.7) -2.7 (0.3) 5.6 (4.4) -5.3(-0.6) intellectual property products rose by 3.0
Imports 4.7 7.0 4.9 (10.1) -1.0 (6.6) 3.2 (7.4) -2.9 (4.1) percent, centering on R&D investment by
G N I 4.2 3.1 2.3 (2.3) -0.6 (1.8) 2.4 (5.0) -1.2 (3.0)
IT companies.
Notes: 1) Figures in parentheses are year-on-year rates.
2) Contribution to growth rate of GDP(%p).
16
<Table II- 5> Fixed capital formation1)

goods also rose as private consumption dis-
(%) played favorable patterns.
2017p
2016
Year I II III IV
Acceleration in Manufacturing Growth,
Fixed capital
5.6 8.6 3.6(11.0) 1.8(10.0) 0.9 (9.2) -1.2 (5.0)
formaiton and Slight Slowdown in Services
Construction 10.3 7.6 4.2(11.3) 0.9 (8.5) 1.1 (8.0) -2.3 (3.8)
II. Economic Trends

(Buildings) 16.2 12.1 4.5(16.7) 2.4(13.8) 1.9(11.9) -1.6 (7.5)
A look at production activities across the
(Other construction) -1.8 -3.5 3.5 (-1.5) -3.0(-3.6) -1.2 (-3.3) -4.2 (-4.8)
various sectors during 2017 finds that the
Facilities -1.0 14.6 4.5(16.1) 4.3(17.9) 0.2(16.3) -0.7 (8.6)
(Machinery) -0.8 23.0 7.1(28.9) 3.9(29.3) 2.4(23.4) -1.2 (12.5)
pace of manufacturing growth accelerated
(Transport) -1.5 -3.2 -1.7 (-8.0) 5.3(-2.1) -5.5 (-1.3) 0.8 (-1.4) and the robustness in the construction indus-
Intellectual
3.5 3.0 0.3 (3.2) 0.5 (2.2) 1.5 (2.9) 1.1 (3.5)
try continued, while the rate of service sector
property products
1. Real Economy
growth on the other hand slowed slightly.
Note: 1) Figures in parentheses are year-on-year rates.
<Table II- 6> Growth rate by kind of economic activities1)
Exports of goods and services registered a (%)
2017p
1.9 percent year-on-year increase (in real 2016
Year I II III IV
terms). Semiconductors drove the growth in Agriculture,
goods exports, on the back of swelling forest & -2.8 [2.1] 0.3 [2.2] 3.9 -0.3 -1.8 0.2
fishing
demand for memory chips used for high- Mining &
1.8 [0.2] -4.1 [0.2] -0.1 -2.1 -2.9 -1.6
specification IT devices and data center quarrying
expansion. Exports of petroleum products Manufacturing 2.4 [29.5] 4.4 [30.4] 1.7 0.1 2.7 -1.7
Electricity,
expanded due to improved supply and gas & water 2.7 [3.3] 3.1 [3.0] 0.3 3.4 1.7 0.4
supply
demand conditions, while those of chemical
Construction10.1 [5.7] 7.1 [5.9] 4.8 -1.6 1.0 -1.6
products grew in line with the operation of
Services 2.5 [59.2] 2.1 [58.3] 0.4 0.7 1.0 0.3
newly expanded facilities and those of
GDP 2.9 3.1 1.0 0.6 1.4 -0.2
machinery showed a favorable trend sup-
Note: 1) The figures in parenthesis are percentage shares in terms of
ported by expanded investments in facilities the weight of individual industries in nominal GDP excluding
production.
in emerging countries. Exports of services Source: The Bank of Korea.
meanwhile declined significantly, due espe-
cially to the impact on travel services of the Growth in the manufacturing sector accel-
plunge in the number of Chinese tourists in erated to 4.4 percent, above the previous
the wake of the confrontation between year’s 2.4 percent on the back of upswings
South Korea and China over the deploy- in semiconductor products. By sector, the
ment in South Korea of the U.S.-built rate of growth in electric and electronic
THAAD missile defense system. Imports of equipment production accelerated, driven by
goods and services rose by 7.0 percent (in semiconductors, while production of general
real terms) from the previous year. Capital machinery and precision equipment dis-
goods led this growth in imports, under the played high growth owing to increased
influence of the expansions in facilities investment in semiconductor facilities.
investment, while imports of consumer Transport equipment on the other hand saw
17
a decline in production, in line with the con- continued on a high upward trend, while
tinuous restructuring in the shipbuilding growth accelerated greatly in the finance
industry and the listlessness of automobile and insurance sector. In contrast, the whole-
exports. sale and retail trade and food and accom-
modation industries showed considerably
<Table II- 7> Growth rate of manufacturing by sector weaker growth rates, affected mainly by the
(%) sharp decline in the number of Chinese visi-
2017p tors to South Korea.
2016
Year I II III IV
Manufacturing 2.4 4.4 1.7 0.1 2.7 -1.7 <Table II- 8> Growth rate of services by sector
Food, beverage & (Quarter-on-quarter)
2.7 1.6 0.2 0.5 1.8 -1.1
tobacco (%)
Textiles, leather & 2017

-1.0 3.0 7.8 -5.6 0.9 -0.5 2016
fur products Year I II III IV
Wood, paper, Services 2.5 2.1 0.4 0.7 1.0 0.3
printing & 1.3 1.2 0.9 -2.1 0.6 -0.5 (Wholesale & retail
reproduction 2.8 0.7 -1.3 0.6 1.2 0.4
trade, restaurants)
Petroleum and coal 14.0 6.1 2.9 2.2 4.0 -0.2 (Transport & storage) 2.3 2.3 0.1 0.3 2.1 0.2
Chemical products 10.2 3.4 -1.6 0.7 5.5 -1.7 (Finance & Insurance) 2.6 3.7 0.7 2.1 0.3 -0.4
Non-metalic mineral 5.2 1.7 0.4 -5.3 3.4 -2.9 (Real estate & renting) 0.8 0.9 1.9 -0.7 0.6 -0.2
products
(Information &
3.1 2.5 0.9 -0.5 2.4 1.5
Basic metal products 2.0 2.4 1.4 -1.1 2.5 -0.1 communication)
Fabricated metal -1.8 -2.1 2.4 -3.7 -0.4 -2.5 (Business service) 2.4 2.0 0.8 1.1 0.4 0.5
products
(Administration &
2.4 2.6 0.9 0.7 0.5 0.6
General machinery -3.8 14.3 6.7 4.5 -2.5 -2.9 National defense)
Electric machinery 5.3 7.4 -0.2 1.8 7.2 0.7 (Education) 0.1 0.5 0.0 0.4 0.3 0.0
Precision instruments 9.5 23.1 6.8 6.9 3.3 -0.2 (Health & social work) 7.7 7.3 0.8 2.2 3.0 1.6
Transport equipment -5.5 -1.7 3.0 -1.4 -1.3 -7.3 (Culture & others) 2.1 0.4 -0.7 2.0 0.4 -1.8
Other manufacturing -1.5 3.4 3.6 -1.8 -8.5 3.4 Source: The Bank of Korea.
Construction sector production rose by 7.1 (2) Employment and Wages

percent, led by residential and non-residen-
tial building construction. The electricity, Modest Increase in Number of Persons
gas, and water supply sector witnessed a Employed
pickup in its rate of growth, centering
around electricity on the back of increased The number of persons employed showed
sales. Production in the agriculture, forestry a slight increase of 320,000, higher than in
and fishing sector shifted to slightly positive the previous year due to a favorable trend in
growth, led by an expansion in the aquacul- the construction sector and to the govern-
ture industry. ment’s job creation policies.
The rate of service sector growth was 2.1 By industry, the number of persons
percent, down slightly from the 2.5 percent employed in the manufacturing sector fell by
of 2016. By sector, health and social work 18,000 under the impact of restructuring in
18
the shipbuilding industry. The number <Table II- 9> Employment-related indicators
(ten thousand persons, %)
employed in the service industry declined as
2017
well, on the impact on the food and accom- 2016
Year I II III IV
modation industry due to the drop in the Economically active population 2,742 2,775 2,726 2,799 2,796 2,778
number of foreign tourists.8) However, the (Rate of growth1)) 1.0 1.2 1.4 1.5 0.9 1.0
(Participation rate) 62.9 63.2 62.2 63.8 63.6 63.1
numbers of persons employed in administra-
Employed persons 2,641 2,672 2,610 2,692 2,700 2,688
II. Economic Trends

tion and in the health care and social wel- (Rate of growth1)) 0.9 1.2 1.4 1.4 1.0 1.0
fare industries continued to show high rates (Change1)) 23.1 31.6 35.3 36.7 27.9 26.5
of growth, on the back of the government’s < Industry >
Agriculture, forestry & fishing -6.5 0.6 -2.5 0.1 2.1 2.8
job creation policies. Meanwhile, the extent Mining & manufacturing -1.5 -1.4 -11.6 -1.7 3.5 4.3
of increase in employment in the construc- (Manufacturing) -2.1 -1.8 -12.0 -2.1 3.0 4.1
1. Real Economy
tion industry expanded greatly over that in Construction 1.5 11.9 13.6 16.3 8.4 9.2
Services 30.0 20.8 36.0 22.5 14.4 10.5
the previous year, due to the favorable pat-
(Wholesale & retail trade) -6.3 4.1 7.1 4.6 2.0 2.8
terns seen in the industry. The number of (Accommodation & food) 9.6 -0.3 5.5 0.4 -3.1 -4.0
persons employed in the agriculture, (Health care & social welfare) 8.0 6.1 7.8 5.7 5.3 5.4
forestry, and fishing sector meanwhile shifted (Public administration) 5.5 5.5 4.0 2.6 6.8 8.4
(Finance & insurance) 0.4 -0.9 -0.1 -1.4 -1.8 -0.4
to a modest increase.
<Employment status>
The employment rate rose overall, sup- Waged worker 26.7 26.5 19.1 31.2 29.1 26.5
ported by increased numbers of women and (Regular employee) 34.6 36.6 31.7 34.7 41.7 38.2
persons aged 55 or older participating in (Temporary employee) 1.0 -13.2 -15.2 -12.6 -14.5 -10.4
(Daily worker) -8.8 3.1 2.7 9.2 1.9 -1.3
economic activities,9) while the unemploy- Non-waged worker -3.6 5.1 16.1 5.5 -1.2 0.0
ment rate showed a level similar to that of Unemployed persons 100.9 102.3 116.2 107.4 96.3 89.2
2016. In particular, the youth unemploy- Unemployment rate(Before 3.7 3.7 4.3 3.8 3.4 3.2
seasonal adjustment)
ment rate, covering persons aged 15 to 29, (15 to 29 years) 9.8 9.8 10.7 10.3 9.3 9.0
marked 9.8 percent-its highest level since Unemployment rate(After - - 3.7 3.7 3.7 3.7
2000. This rise was attributable to the
Employment rate(Before 60.6 60.8 59.6 61.3 61.4 61.0
increased number of people in their late 20s seasonal adjustment)
entering the workforce.10) Employment rate(After - - 60.9 60.8 60.8 60.9

Note: 1) Year-on-year.
Source: Statistics Korea.
8) The number of foreign visitors to South Korea declined by 23 percent, from 17.24 million in 2016 to 13.34 million in 2017.
9) The proportions in the economically active population accounted for by female workers and people 55 years of age or greater rose by 0.5 and
0.6 percentage points, respectively. The former increased from 52.2 percent in 2016 to 52.7 percent in 2017, and the latter from 50.1 to 50.7
percent during the same time.
10) As the size of the youth population aged 25-29 expanded by a substantial 95,000 during 2017, well above its increase of 13,000 in 2016, the
scale of its year-on-year increase widened.
19
Slowdown in Wage Increases (3) Prices
The rate of increase in nominal wages CPI Inflation Closer to Inflation Target
slowed to 2.7 percent in 2017 compared to
the previous year’s 3.8 percent. Among reg- Consumer prices rose by an average
ular workers the rate of wage growth was annual rate of 1.9 percent, an upward trend
considerably lower than in 2016, affected by approaching the 2 percent inflation target.
a sharp reduction in bonus payments as a This was attributable mainly to supply-side
result of corporate restructuring and by factors such as increases in international oil
delays in settlements of wage negotiations at prices and the prices of agricultural, live-
major manufacturers. stock and marine products. In the mean-
The pace of unit (non-farm) labor cost time, despite the pickup in the domestic eco-
increase slowed, despite a rise in nominal nomic recovery, core inflation,11) which
wages per hour at the same level as in 2016 reflects the demand-side inflationary pres-
due to a reduction in labor hours, as labor sures on prices, remained low in the mid-1
productivity increased. percent range.
By product type, the prices of agricultural,
<Table II-10> Wage-related indicators livestock and marine products rose sharply,
(Year-on-year)
(%) under the impacts of adverse weather condi-
2016
2017 tions and a widespread outbreak of avian
Year I II III IV influenza. The prices of industrial products
Nominal wages1) 3.8 2.7 2.5 3.5 3.2 1.8
shifted to an upward direction, in line with
(Real wages)2) 2.8 0.8 0.5 1.5 0.8 0.3
< Status >
the rise in international oil prices, and elec-
Regular employee 3.8 2.3 2.1 3.1 2.7 1.4 tricity, water and gas charges fell by 1.4 per-
Regular payment 3.3 3.4 3.0 3.5 3.3 3.9 cent as the effects of the reduction in elec-
Overtime payment 3.8 0.7 0.7 1.7 1.9 -1.4 tricity charges at the end of 2016 persisted.
Special cash payment 6.7 -2.7 -1.0 0.6 0.5 -10.3 Service charges saw a mild reduction in
Temporary & daily worker 3.1 4.8 5.6 4.6 5.3 3.9
their scale of increase compared to 2016,
Nominal hourly wage3) 4.7 4.7 0.8 6.1 1.4 10.6
despite an upswing in personal service fees.
Labor productivity4) 2.5 3.7 -0.3 3.7 1.1 10.7
Unit labor costs5) 2.2 0.9 1.2 2.2 0.4 0.0
This was attributable mainly to a slowdown
in the paces of increase in housing rental
Notes: 1) Based on businesses employing at least five regular
employees, non-farm basis. prices and public service charges.
2) Nominal wage/CPI. 3) Nominal wage/hours worked.
4) Real gross added values/(total employed persons x hours
worked), non-farm basis.
5) Nominal hourly wage/labor productivity.
Sources: The Ministry of Employment and Labor, Statistics Korea, The
Bank of Korea.
11) Statistics Korea publishes two core inflation indexes: one that excludes agricultural products and oils, and the other excluding food and
energy. Of these two, based on an evaluation of their volatilities, predictabilities and the possibilities of international comparison the Bank of
Korea began from January 2017 to use the one with food and energy prices excluded from the consumer price index (CPI) as its principal
core inflation index. For more information refer to page 8 of the Bank of Korea’s Economic Outlook Report (January 2017).
20
<Table II-11> CPI Inflation & Core Inflation increase in the number of new apartment
(Year-on-year) units available.
(%)
2017
2016 <Table II-12> Rate of increase in housing prices
Year I II III IV
and housing leasehold deposits
Consumer price index 1.0 1.9 2.1 1.9 2.3 1.5
Agricultural&marine 3.8 5.5 6.1 6.1 8.4 1.4 (%)
products
II. Economic Trends

2017
(Agricultural products) 3.8 4.6 4.7 3.6 10.2 -0.1 2016
Year I II III IV
(Stock products) 4.4 6.5 8.6 9.6 6.7 1.3
Housing Prices 0.7 1.5 0.1 0.5 0.6 0.4
(Marine products) 2.9 6.8 6.6 7.4 5.9 7.1
<the Greater Seoul area> 1.3 2.4 0.1 0.7 0.8 0.7
Industrial products -0.5 1.4 2.1 1.3 0.9 1.5
<Outside the Greater 0.2 0.7 0.1 0.2 0.3 0.1
(Oils) -8.1 7.7 12.0 7.7 3.4 8.0 Seoul area>
Electricity, gas & Housing leasehold
1. Real Economy
-9.2 -1.4 -6.9 -2.4 8.0 -3.3 1.3 0.6 0.1 0.2 0.2 0.1
water supply deposits
Services 2.3 2.0 2.1 2.0 1.9 1.9 <the Greater Seoul area> 2.0 1.4 0.2 0.5 0.5 0.2
(Rentals for housing) 1.9 1.6 1.7 1.8 1.6 1.4 <Outside the Greater 0.7 -0.1 0.1 0.0 -0.1 -0.1
Seoul area>
(Public services) 1.5 1.0 1.0 1.0 1.0 0.8
Housing monthly -0.2 -0.3 0.0 -0.1 -0.1 -0.1
(Personal services) 2.7 2.5 2.7 2.5 2.3 2.5
rent prices
Eating out 2.5 2.4 2.3 2.3 2.4 2.6
<the Greater Seoul area> 0.1 0.1 0.0 0.1 0.1 0.0
CPI excluding food & energy1) 1.9 1.5 1.7 1.5 1.4 1.5
<Outside the Greater -0.4 -0.7 -0.1 -0.2 -0.2 -0.2
CPI excluding agricultural 1.6 1.5 1.5 1.4 1.7 1.3 Seoul area>
products & oils2)
Land prices 2.7 3.9 0.7 1.1 1.1 0.9
Notes: 1) Excluding food(apart from liquor) and energy from the CPI.
2) Excluding agricultural products(apart from grain) and Sources: Korea Appraisal Board, Ministry of Land, Infrastructure and
petroleum products(includes city gas) from the CPI. Transport.
Source: Statistics Korea.
Accelerated Increase in Housing Sales (4) Current Account

Prices, and Slowdown in Leasehold
Deposit Price Growth Continuing Current Account Surplus
Housing sales prices rose by 1.5 percent The current account sustained its surplus,
on-year, as their pace of increase thus led by the goods account, but the scale of
expanded compared to the year before. The the surplus shrank compared to 2016 in line
disparity between Seoul and other areas with an expansion in the services account
grew markedly across the board, as sale deficit.
prices demonstrated upward trends in the The goods account recorded a 119.9-billion
Seoul Metropolitan Area while other areas dollar surplus, as exports grew remarkably
saw sluggish increases due to expansions in thanks to increased global demand and
their housing supplies and to regional eco- improved export conditions for major prod-
nomic slumps. ucts.
Leasehold deposit prices and monthly
housing rental prices showed weaker trends
than in 2016, in line with a significant
21
<Table II-13> Summary table of current account <Table II-14> Exports by major item
(hundred million USD) (%)
2016 2017p Change 2016 2017
2015
(A) (B) (B-A) % % Shares % % Shares
Change in total Change in total
Current account 1,059.4 992.4 784.6 -207.8
IT products -6.0 <32.8> 21.6 <34.4>
Goods 1,222.7 1,189.0 1,198.9 9.9
Semiconductors -1.0 <12.7> 60.2 <17.5>
Exports1) 5,428.8 5,119.5 5,773.8 654.3
Wireless
Imports1) 4,206.1 3,930.5 4,574.9 644.4 communication -14.3 <5.3> -22.7 <3.5>
Services -149.2 -177.4 -344.7 -167.3 equipment
Primary income 35.7 38.5 1.2 -37.3 Display panel -15.5 <5.1> 9.0 <4.8>
Secondary income -49.9 -57.7 -70.8 -13.1 Non-IT products -5.9 <67.2> 13.0 <65.6>
Note: 1) Based on balance of payments. Automobile -8.8 <13.1> -0.8 <11.2>

Source: The Bank of Korea. Petroleum product -17.2 <5.4> 32.2 <6.2>
Iron & steel products -3.5 <8.1> 17.4 <8.2>
Increase in Exports Ship -13.7 <6.8> 23.6 <7.2>
Total exports1) -5.9 [4,954] 15.8 [5,737]
Exports (custom-clearance basis) totaled Note: 1) [ ] Figures in square brackets are the total amount of
exports(hundred million USD), inconsistent with exports on
573.7 billion dollars during 2017, up by 15.8 ‘Summary table of current account’ estimated on the basis
of change of ownership.
percent from the previous year. By item, Sources: Korea International Trade Association, Korea Customs
exports of IT products such as semiconduc- Service.
tors and OLED devices exhibited sharp rises

in line with the favorable global market con- Increase in Imports
ditions. Non-IT sector exports surged, led
mainly by shipbuilding industry exports as Imports (customs-clearance basis) rose by
deliveries of high-priced overseas plants 17.8 percent over the previous year to total
increased. Exports of petroleum, chemical 478.5 billion dollars. Raw materials imports
and steel products shifted to positive move- surged dramatically, centering around crude
ments, with both quantities and unit prices oil, petroleum products and gas in line with
increasing. Exports of wireless communica- the increased unit prices of crude oil
tion devices in the meantime continued their imports. Imports of capital goods also
downturn, owing to expansions in overseas expanded in most categories, driven espe-
production and to escalating competition. cially by those of semiconductor manufac-
The decline in automobile exports continued turing equipment against a background of
as well, affected by sagging exports of auto- growth in exports and facilities investment.
mobile parts. The scale of increase in consumer goods
imports widened, led by goods for direct
consumption and durable goods.
22
<Table II-15> Imports by major item The primary income account surplus
(%)
meanwhile narrowed to 122 million dollars,
2016 2017
% % Shares % % Shares as overseas dividend payments increased
Change in total Change in total with the rises in operating profits and
Crude material & fuel -12.8 <47.0> 22.0 <48.7>
domestic companies’ higher propensities for
Capital goods -2.0 <36.4> 16.2 <35.9>
payment of dividends. The secondary
Electric・electronic
II. Economic Trends

-3.0 <20.9> 12.9 <20.0>
machine income account recorded a 7.1 billion-dollar
Machinery・precision deficit.
equipment -2.6 <11.8> 31.9 <13.2>
(Semiconductor
manufacturing 7.5 <2.2> 120.8 <4.1> <Table II-17> Primary and secondary income accounts
equipment)
(hundred million USD)
Consumer goods 1.0 <16.6> 9.2 <15.4>
2014 2015 2016 2017p
1. Real Economy
Total imports1) -6.9 [4,062] 17.8 [4,785]
Primary income 41.5 35.7 38.5 1.2
Note: 1) Figures in square brackets are the total amount of
exports(hundred million USD), inconsistent with imports on
Compensation of -4.5 -0.7 -5.7 -8.6
‘Summary table of current account’ estimated on the basis
employees
of change of ownership. Investment income 46.0 36.4 44.2 9.8
Sources: Korea International Trade Association, Korea Customs
Service. Secondary Income -49.8 -49.9 -57.7 -70.8
Widening Services Account Deficit
The services account deficit widened sig- (5) Regional Economic Trends
nificantly compared to the previous year.
The travel account recorded a 17.2-billion With regard to production activities by
dollar deficit due to the reduced number of region, manufacturing production increased
Chinese visitors to Korea and the increased compared to the previous year in the Seoul
number of Koreans travelling overseas, Metropolitan and Chungcheong regions, dri-
while the transport account recorded a ven by upturns in the semiconductors, petro-
deficit of 5.3 billion dollars, affected mainly chemicals, oil refining, and iron and steel
by the restructuring being undertaken in the industries. Production in contrast declined in
shipbuilding industry. the Dongnam, Honam and Daegyeong
regions, due to slowdowns in the shipbuild-
<Table II-16> Services account ing and automobile industries. Services pro-
(hundred million USD)
duction expanded compared to 2016 in
2014 2015 2016 2017p
most regions, but the extent of increase nar-
Services -36.8 -149.2 -177.4 -344.7
rowed under the impacts primarily of down-
Manufacturing services -56.4 -61.0 -57.6 -67.6
turns in the wholesale and retail trade and
Transport 61.9 46.3 -15.5 -53.0
Travel -53.6 -100.6 -99.1 -171.7
the food and accommodation services due to
Construction services 152.9 96.4 95.6 77.1 the decreased number of Chinese tourists.
Source: The Bank of Korea. Looking at the demand side,12) retail sales
12) The trends of regional consumption and facilities and construction investment are estimated using the retail sales indexes, the facilities
investment BSI, and the area of new construction.
23
turned to a decrease from an increase in the marine products.

previous year in the Dongnam and Honam Housing sales prices showed patterns that
regions but picked up in other areas. With varied across regions. The paces of increase
regard to facilities investment, the recovery in housing sales prices accelerated in the
of corporate investment confidence on the Seoul Metropolitan and Honam regions dri-
back of the brisk exports pushed the ven by investment demand for apartment
Business Survey Index (BSI) for facilities reconstruction, and in Gangwon region on
investment upward over the previous year in the effects of favorable conditions such as
most regions. Construction investment traffic network expansion. Other regions in
showed favorable trends in the the meantime saw slow growth. In terms of
Chungcheong and Honam regions in the leasehold deposit prices, their rates of
first half of the year, centering around resi- growth expanded in the Honam and
dential buildings, as the construction projects Gangwon regions, but contracted or
already underway continued. However, decreased in other regions in line with
affected by the decrease in new projects in expansions in new housing supply.
line with the government’s housing-market
stabilization measures, the total areas of new
construction projects fell in most regions
other than Honam.
Exports meanwhile increased largely in
the majority of regions, centering primarily
around major export items such as semicon-
ductors, petrochemicals, and iron and steel
products and influenced by the base effects
of low export volumes in the previous year
and by the recovery in global trade.
The extents of increase in the numbers of
persons employed widened in the Seoul
Metropolitan, Chungcheong and Gangwon
regions, but narrowed in the Honam and
Daegyeong regions owing to slumps in major
industries and to slowing service-sector
growth. Unemployment rates declined in the
Chungcheong, Daegyeong and Gangwon
regions, but edged up in the Seoul
Metropolitan, Dongnam and Honam
regions.
Meanwhile, the consumer prices rose due
to the increases in global oil prices and in
the prices of agricultural, livestock and
24
<Table II-18> Major indicators by region1)

(%)
Seoul
Dongnam Chungcheong Honam Daegyeong Gangwon Jeju
Metropolitan
2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017
Production
Manufacuring 6.6 3.8 -3.1 -3.1 8.5 9.9 0.4 -0.1 -3.8 -4.2 8.0 15.3 3.6 5.7
production index2)
II. Economic Trends

Services production
3.5 2.9 2.2 1.5 3.4 2.5 2.5 1.4 2.3 1.9 3.4 1.2 6.9 2.7
index2)
Demand
Retail sales index2) 3.9 2.0 0.8 -0.4 3.1 1.7 1.6 -0.4 1.1 0.4 2.5 0.9 11.2 2.1
Facilities investment BSI
95 97 91 93 96 96 94 97 84 90 101 102 102 118
(Base=100)
1. Real Economy
Area of new construction 2)
-10.3 -9.1 8.4 -24.0 -20.2 -3.5 9.8 15.0 -11.7 -27.1 40.4 -16.8 17.9 -34.9
Exports3) -5.1 17.9 -8.0 13.3 -0.2 20.5 -9.1 7.0 -10.1 14.6 -11.8 7.4 6.5 20.4
Employment
Change in number of
12.5 19.9 1.8 2.5 3.7 4.9 1.7 -1.3 1.1 -0.5 0.9 4.0 1.6 1.9
employed persons4)
Unemloyment rate 4.1 4.2 3.6 3.7 3.0 2.8 2.7 2.9 3.6 3.4 2.8 2.6 2.2 1.9
Employment rate 61.0 61.3 58.4 58.7 61.2 61.4 60.4 60.0 60.9 60.7 58.2 61.0 69.3 70.9
Labor force 63.6 64.0 60.6 61.0 63.2 63.2 62.0 61.7 63.2 62.8 59.9 62.6 70.8 72.3
participation rate
Prices
CPI2) 1.0 2.0 1.1 1.7 0.7 1.9 0.8 2.0 0.8 1.9 0.8 2.0 1.3 2.3
Housing sales prices5) 1.3 2.4 1.1 0.2 -0.7 0.2 0.5 1.9 -1.7 0.0 1.3 2.4 4.6 1.7
Housing leasehold
2.0 1.4 1.6 -1.0 0.6 -0.1 1.0 1.4 -1.3 -0.7 1.3 1.8 1.9 0.1
deposit prices5)
Notes: 1) Seoul Metropolitan region includes Seoul, Incheon and Gyeonggi-do, Dongnam region includes Busan, Ulsan and Gyeongsangnam-do
and Deagyeong region includes Daegu and Gyeongsangbuk-do.
2) Year–on–year rates of change. 3) Customs–clearance basis, year–on–year rates of change.
4) Year–on–year change(ten thousand persons).
5) Rates of change compared with last months of previous year.
Sources: The Bank of Korea, Statistics Korea, Ministry of Land, Infrastructure and Transport, Korea Customs Service, Korea Appraisal Board.
25
2. Financial and Foreign <Table II-19> Major international interest rates

and risk premia
Exchange Markets (As of period-end)
(% per annum, bp)
2017
2016
Ⅰ Ⅱ Ⅲ Ⅳ
A. International Financial Long-term interest rate
(U.S.) 2.44 2.39 2.30 2.33 2.41
Markets (Euro area) 0.21 0.33 0.47 0.46 0.43
(Japan) 0.05 0.07 0.09 0.07 0.05
Differing Movements of Long-term
Risk premium
Interest Rates Across Countries
(U.S. corporate bond spread)1) 231 231 213 205 183
(Emerging market economies
242 214 202 185 120
U.S. long-term interest rates (10-year CDS premium)2)
(Emerging market
Treasury bond yield basis) fell in the first economies spread)3)
363 338 334 317 329
half of 2017, on concerns about a weaken-
Notes: 1) Yield on 10-year corporate bond(Baa).
ing of the Trump administration’s power to 2) Weighted average of 15 emerging economies’ CDS
premium by Markit.
push its policies ahead. They subsequently 3) JP Morgan EMBI+(Emerging Markets Bond Index Plus).
Sources: Bloomberg, JP Morgan, Markit.
rebounded, however, on the impacts of
favorable U.S. economic indicators. Long-
term rates in the Euro area registered a 0.22 Global Stock Prices Rise in Advanced and
percentage point increase over the course of Emerging Economies
the year, owing to a pickup in economic
growth and to the European Central Bank The U.S. Dow Jones Industrial Average
(ECB)’s winding down of its accommodative surged by 25.1 percent during the year,
monetary policy stance.13) Japanese long-term influenced by favorable economic indicators,
interest rates meanwhile moved within a while stock prices in the euro area and
narrow range. Japan rose by 6.5 and 19.1 percent respec-
Credit Default Swap (CDS) premia and tively. Stocks in emerging countries also
Emerging Market Bond Index Plus (EMBI+) soared in price during the year, by 34.3 per-
spreads in emerging economies fell, affected cent, thanks to upswings in exports and to
by the robust pace of growth in China and the improved economic conditions in natural
the easing of economic slumps in natural resource-exporting countries.
resource-exporting countries.
13) At its monetary policy meeting on October 26, 2017 the ECB decided to reduce the monthly volume of its asset purchases from 60 to 30
billion euros during the period from January to September 2018.
26
Stock Prices of major advanced

<Figure II- 2> B. Domestic Financial Markets
economies and MSCI Emerging Markets Index
(2015.1=100) (2015.1=100)
150 150
Dow Jones
140 Eurostoxx 140 (1) Interest Rates
Nikkei
130 MSCI EM 130
120 120
Sharp Rise in Domestic Long-term Interest
II. Economic Trends

110 110
Rates
100 100
The Treasury bond (3-year) yield rose
90 90
gradually from mid-June, on the highlighting
80 80
of possible changes in monetary policies
70 70
2. Financial and Foreign Exchange Markets

both domestically and abroad. Entering
60 60 October it soared with the growing expecta-
2015 2016 2017
Source: Bloomberg.
tions of a Base Rate hike within the year as
the Bank of Korea increased its forecast for
U.S. Dollar Weakens Against Major 2017 economic growth. From the end of
Currencies October, however, affected by the adjust-
ment in volume of bond issuance by the
The U.S. dollar exhibited a trend of weak- government and the Bank, and in advance
ening,14) on the expansion in uncertainties reflection of the likely hike in the Base Rate,
about U.S. policies and relaxed concerns the trend of sharp increase in the Treasury
about an accelerated pace of interest rate bond yield eased, and after the Base Rate
hikes by the U.S. Federal Reserve. was raised on November 30 it maintained
more stable developments in expectations of
<Figure II- 3> Major exchange rates further gradual Base Rate increases.
140
(yen/dollar) (dollar/euro)
1.4 The yield on Monetary Stabilization
Yen/Dollar(left)
Dollar/Euro(right)
Bonds (91-day), the benchmark short-term
130 1.3 interest rate, rose rapidly from the end of
September, driven by the increases in long-
120 1.2 term rates and expectations of a Base Rate
hike. After the Base Rate had actually been
110 1.1 raised, the MSB yield fluctuated within a
narrow range.
100 1.0
90 0.9
2015 2016 2017
Source: Bloomberg.
14) In 2017 the U.S. dollar depreciated by 14.1 percent against the euro and by 3.7 percent against the yen.
27
<Figure II- 4> Major market interest rates and Increases in Bank Lending and Deposit
term-spread1)
Rates
(% per annum) (%p)
3.0 1.0
3-year KTBs(left)
3-year AA- corporate bonds(left) Interest rates on bank deposits and loans
91-day CDs(left)
Base rate(left) (newly-extended basis) fluctuated within rela-
2.5 0.5
Term spread (right) tively narrow ranges, before then rising
under the influence of the rising market
2.0 0.0 interest rates after the hike in the Base Rate.
<Table II-20> Banks’ weighted average

1.5 -0.5 interest rates on loans and deposits
(Newly-taken/extended amounts)
(%, %p)
1.0 -1.0 2016 2017
2016.1 7 2017.1 7 Dec. Mar. Jun. Sep. Dec. D-C
(C) (D)
Note: 1) Yields difference between 3-year KTBs and
Base Rate. Interest rates on loans(A) 3.44 3.48 3.44 3.46 3.62 +0.18
Sources: The Bank of Korea, (Loans to corporations) 3.54 3.53 3.45 3.48 3.64 +0.10
Korea Financial Investment Association.
(Loans to households) 3.29 3.43 3.41 3.41 3.61 +0.32
Interest rates on
1.56 1.49 1.49 1.53 1.81 +0.25
The corporate bond credit spread over the deposits(B)
Treasury bond yield narrowed, on expecta- Loans-deposits

1.88 1.99 1.95 1.93 1.81 -0.07
Interest spread(A-B)
tions of improvements in corporate perfor-
mances and the highlighting of the merits of
corporate bond interest rates.
(2) Capital Markets
<Figure II- 5> Corporate bond credit spreads1)
and risk premium2)
KOSPI Surges
(bp) (bp)
100 Corporate bond(AA-) credit spread(left) 200
Corporate bond(A-) credit spread(right)
Corporate bond risk premium(right) The Korea Composite Stock Price Index
80 170
(KOSPI) rose sharply during the first
half–due to the favorable economic indica-
tors at home and abroad, to the forecasts of
60 140
growth in corporate profits, and to the
expectations of expansionary fiscal policy
40 110 implementation by the new government
administration. Starting in late July the
KOSPI then reversed to a downturn, under
20 80
2016.1 7 2017.1 7 the influence of factors such as profit-taking
Notes: 1) Yields difference between 3-year corporate and the escalating risks related to North
bonds and 3-year KTBs.
2) Yields difference between 3-year A- corporate
Korea.15) In October the KOSPI returned to
bonds and 3-year AA- corporate bonds. an upward course, in line with the easing of
Source: Korea Financial Investment Association.
15) The increase in North Korea-related risks stemmed from the aggressive statements exchanged between the U.S. and North Korea, and from
the additional provocative actions taken by North Korea such as its sixth nuclear test in September.
28
tensions with North Korea and improve- (3) Deposits and Loans of Financial
ments in corporate performances, to reach a Institutions
record high of 2,558 on November 3. The
index showed a weakening tendency after Growth in Bank Deposit-taking Continues
that, on the subsequent profit-taking, and
closed the year at 2,467, up by 21.8 percent Bank deposit-taking showed a scale of
II. Economic Trends

compared to the previous year-end. growth similar to that in 2016. The extents
The KOSDAQ index showed modest of growth in time deposits and marketable
upward movements until October, and then instruments expanded, affected by a variety
rose sharply after the announcement in early of factors including the increases in deposit
November of the government’s plan to pro- rates and the tightening of standards for cal-

mote the KOSDAQ market. It ended the culation of the liquidity coverage ratio
year at 798, having increased by 26.4 per- (LCR), an indicator under Basel III of the
cent compared to year-end 2016. short-term resilience of banks against poten-
tial liquidity disruptions.16) Stand-by funds
<Figure II- 6> KOSPI and KOSDAQ Index such as transferable deposits saw substantial
(1980.1.4 = 100) (1996.7.1 = 1,000) declines in growth, however, due to the hike
2,700 850
KOSPI(left)
2,600 KOSDAQ Index(right)
in the Base Rate.
800 Looking at deposit-taking by non-bank
2,500
2,400 financial institutions, the scale of growth in
750
2,300 that by asset management companies con-
2,200 700 tracted sharply, as deposits into money mar-
2,100 ket funds (MMFs) and bond-type funds
650
2,000 slowed due to the increased opportunity
1,900
600
costs of holding these instruments and to
1,800 concerns about valuation losses on them.
1,700 550 The growth in deposit-taking by depository
2016.1 7 2017.1 7
institutions such as credit unions widened
Source: KOSCOM.
somewhat, in line with the merits of their
interest rates.
16) As the guidelines for the foreign exchange liquidity coverage ratio (LCR= High-quality liquid foreign currency assets / Foreign currency net
cash outflows for next 30 days (outflows - inflows)) were tightened, banks worked to raise funds through time deposits and the issuance of bank
bonds in order to raise their LCRs, and expanded their purchases of high-quality liquid assets.
29
<Table II-21> Financial institutions’ deposits retained earnings. Corporate lending by

(Changes in deposits)
(trillion won) non-bank financial institutions, especially
2017 credit unions, expanded.
2016
Year I II III IV Meanwhile, household lending by bank
Deposits at Banks1) 80.8 79.5 -7.2 35.9 35.0 15.8
(excluding mortgage loans assigned to Korea
Demand deposits 23.7 14.3 -3.7 8.2 4.7 5.1
Housing Finance Corporation) showed lower
Time & savings deposits 53.2 47.6 -1.5 16.1 25.3 7.7
Transferable deposits 36.5 19.7 -1.4 9.6 6.9 4.7
growth than in 2016, at 43.3 trillion won.17)
Time deposits 19.8 31.8 3.3 6.0 19.1 3.4 This was due primarily to factors such as
Marketable instruments2) 3.9 17.7 -1.9 11.6 5.0 2.9 the government’s measures to regulate real
Deposits at asset estate and household lending, borrowers’
47.6 27.9 17.0 7.3 7.7 -4.2
management companies
MMFs 10.9 -7.0 13.9 -8.0 -3.3 -9.7
repayments of loans for intermediate pay-
Stock-type funds -7.7 4.2 -4.5 -0.2 2.5 6.3 ments following the completions of construc-
Bond-type funds 18.7 -8.6 -1.1 2.9 -0.9 -9.6 tion of pre-sold apartments, and the
New funds3) 29.6 45.3 11.2 14.4 10.0 9.7 decreased amount of new housing projects.
Deposits at mutual The scale of growth in household lending by
6.6 6.9 1.9 1.0 2.1 1.8
savings banks
Deposits at credit
non-bank financial institutions plunged,
35.3 44.6 15.6 12.9 9.1 7.0
cooperatives4) especially at credit cooperatives and insur-
Notes: 1) The figures exclude deposits from bank, government, ance companies, as measures to regulate
non-residents.
2) CD, RP, Cover bills, Bank debentures. lending such as guidelines on mortgage loan
3) Derivatives, Real Estate, Indirect・special assets, mixed-
asset funds. screening tailored to mutual credits and
4) Mutual credits, community credit cooperatives, credit
unions.
measures to enhance non-bank financial
Sources: The Bank of Korea, KOFIA. institution soundness were introduced.
Corporate Lending Expands, but

Household Lending Slows
The scale of increase in corporate lending

by financial institutions expanded compared
to 2016. Among corporate lending by banks,
that to small and medium-sized enterprises
(SMEs) increased by 44 trillion won, a larger
scale of growth than in the preceding year
due to increased demands for operating
funds in line with the economic recovery.
Bank lending to large corporations contin-
ued to decline, due to their repayments of
borrowings with their increased volumes of
17) If banks’ policy mortgage loans (Bogeumjari Loans and Conforming Loans) transferred to Korea Housing Finance Corporation are included,
the change in the value of bank household lending during 2017 is estimated to have been approximately 58.8 trillion won.
30
<Table II-22> Financial institutions’ loans nomic growth. At year-end 2017 it stood at
(Changes in loans)
(trillion won) 1,070.5 won, the lowest figure of the year.
2017 During 2017 the won rose by 12.8 percent
2016
Year I II III IV in value against the dollar compared to its
Bank loans 77.5 83.6 13.3 18.7 31.0 20.7
year-end 2016 level.
Corporations 23.9 40.4 12.2 6.7 16.0 5.4
Large corporations -9.9 -3.7 1.6 -2.9 0.8 -3.1
II. Economic Trends

SMEs 33.8 44.0 10.6 9.6 15.2 8.6 <Figure II- 7> Korean won exchange rates1)
Household 53.7 43.3 1.1 12.0 15.0 15.2 (won/dollar) (won/100yen)
1,300 1.300
Non-bank loans USD/KRW(left)
Corporations1) 30.0 41.8 8.4 10.9 11.0 11.5 JPY(100)/KRW(right)
Household2) 78.2 57.0 15.2 14.9 13.3 13.6 1,200 1,200

Credit cooperatives 38.0 19.8 6.3 5.7 3.4 4.3

Insurance institutions 9.6 6.3 0.8 1.4 1.4 2.8
Other financial 1,100 1,100
17.7 19.9 5.4 7.0 3.6 4.0
intermediaries
Notes: 1) Includes loans to public & others. Based on loans by mutual
savings banks, credit unions, mutual credits, community
credit cooperatives, and insurance companies. 1,000 1,000
2) Based on loans by mutual savings banks, credit unions,
mutual credits, community credit cooperatives, insurance
companies, pension funds, specialized credit financial
companies, and public financial institutions, etc. 900 900
Sources: The Bank of Korea, Financial Supervisory Service. 2016.1 7 2017.1 7
Note: 1) USD/KRW : Closing price in the Seoul Foreign

Exchange Market. JPY Quoted by KEB Hana
(4) Foreign Exchange Market Bank.
Sources: The Bank of Korea, KEB Hana Bank.
Year-on-year Drop in USD/KRW Exchange

Rate The JPY/KRW exchange rate (per 100
yen) meanwhile remained in flux, under the
The USD/KRW exchange rate fell sub- influences of the changes in expectations
stantially until the end of March, affected by about the U.S. Federal Reserve’s rate hikes
concerns about U.S. protectionism, by the and the risks related to North Korea.
briskness of exports, and by inflows of funds Entering October it dropped, as the won
of foreign investors to the domestic stock grew in strength against the yen. At year-
market. In the following months the end 2017 the rate was 949.2 won per 100
exchange rate fluctuated in line with devel- yen, up by 9.1 percent since the end of
opments in terms of the North Korea-relat- 2016.
ed risks and the shift in expectations for Year-on-year reductions were seen in both
interest rate hikes within the year by the the intra-day and the day-to-day volatilities
U.S. Federal Reserve. Entering October the of the USD/KRW exchange rate: they aver-
USD/KRW rate turned to a downward aged 5.5 and 4.4 won respectively for the
trend, due to the easing of the North Korea year as a whole, down from 7.5 and 6.0
risks, to the continuing weakness of the dol- won in 2016.
lar and to the robust rate of domestic eco-
31
<Figure II- 8> USD/KRW exchange rate volatility <Figure II- 9> Foreign exchange swap rate
and currency swap rate
(won) (won)
15 15
(% per annum) (% per annum)
Intra-day1) Day-to-day2) 2 2
10 10 1 1
0 0
5 5
-1 Foreign exchange -1
swap rate(3-month)
Currency swap
0 0 rate(3-month)
2016.1 7 2017.1 7 -2 -2
2016.1 7 2017.1 7
Notes: 1) Averages of ‘the intra-day highest rate -
intraday lowest rate’ Sources: The Bank of Korea, Korea Money Brokerage
2) Averages of the absolute value of ‘the day Corp., Tullet prebon Money Brokerage Korea Ltd.
closing rate - the previous day closing rate’
Foreign Exchange Swap Rate Declines,

but Currency Swap Rate Rises
The foreign exchange swap rate18) (3-

month maturity) registered a negative 0.63
percent, 0.61 percentage points lower than
at the end of 2016 in line with the expanded
demand for foreign currency funds.
The currency swap rate19) (3-year maturity)
was 1.57 percent, up by 0.37 percentage
points compared to end-2016 due mainly to
increases in Treasury bond yields in line
with the buoyancy of economic indicators
18) A foreign exchange swap is a transaction through which two parties exchange different currencies at a certain point in time at an agreed
exchange rate. They then re-exchange the principals after a set period at the forward exchange rate determined when the relevant contract
was concluded. The foreign exchange swap rate is expressed as the annualized rate (%) of the difference between the forward and spot
exchange rates as against the spot exchange rate: {(Forward exchange rate - Spot exchange rate) / Spot exchange rate}.
19) A currency swap resembles a foreign exchange swap in that two parties exchange different currencies and re-exchange the principals after a
predetermined period of time. They differ, however, in that the period of maturity for the former usually exceeds one year, that the parties to
a currency swap exchange interest payments during the contract period, and that the amount of principal exchanged through a currency swap
is the same at the time of the initial exchange and at maturity. The currency swap rate refers to the spread over LIBOR of the fixed interest
rate on the Korean won exchanged.
32
1. Medium-term Strategies 4 Ensure the Safety and Efficiency of Payment and

Settlement Systems
Expand the infrastructure of payment and settlement systems to
ensure financial stability
Promote payment and settlement innovation and development
The Bank of Korea dedicates its utmost
Strengthen the oversight and policy functions of payment and
efforts to fulfilling its objectives of securing settlement systems
price and financial stability, and to gaining 5 Strengthen Research Studies Related to Current Economic
Issues and Expand Statistics
the public’s trust as the nation’s central Enhance the accuracy of economic analysis and forecasting
bank. To this end it has since 2012 annually Search out pathways to sustainable growth
Ensure that new international statistical standards are applied and
identified and implemented a set of strategic
take root stably
priorities defining the operational objectives Develop and expand statistics useful in economic forecasting and
III. The Bank of Korea’s Conduct of Its Business

and priorities for the Bank as a whole over analysis
Strengthen research exchanges at home and abroad, and enhance
the subsequent three years. In accordance capacity to reach policy consensus
with these priorities, all departments estab- 6 Heighten the Effectiveness of Foreign Exchange Reserve
Operations
lish and implement their own key business Ensure stable operation of the foreign exchange reserves
plans for the corresponding fiscal year. Seek effective investment strategies for responding to changes in
the market environment
The medium-term strategies in 2017 com-
Expand capabilities of foreign exchange reserve operations
prises 9 strategic objectives in the various
7 Enhance the Efficient Supply and Reliability of Currency
major business areas, and 34 related strate-
Establish a stable currency management system appropriate to the
gic plans. The following sections outline the changing currency supply and demand conditions
key tasks and directions of these strategic Improve safeguards against currency counterfeiting to improve
currency reliability, and enhance communications with the public
plans in the different business areas: to prevent the circulation of forged banknotes
Expand research studies related to the currency issue system and
1. Medium-term Strategies
<Table III- 1> Medium-term Strategies in 2017 currency demand
8 Strengthen Public Communication and International
1 Enhance the Effectiveness of Monetary and Credit Policies Cooperation
Support optimal monetary policy decision-making and upgrade Improve the quality of the bank’s public communication and
the analysis of monetary policy effects economic education
Heighten the effectiveness of the operation of policy instruments Enhance policy exchanges and cooperation with international
Heighten the effectiveness of inflation targeting operations forums, international organizations and other central banks
Build a system for the operation of monetary policy in accordance 9 Effectively Manage Organization and Human Resources
with changes in financial and economic conditions Enhance the efficiency of the organization’s operations
Strengthen communication for the seamless implementation of Enhance the sophistication of risk management and strengthen
monetary policy crisis response capacity
2 Carry Out Policies for Financial Stability Effectively Enhance specialties and diversity of staff members
Construct and actively operate a framework for implementing the Heighten the competency of staff members
financial stability function Rationally streamline the compensation and welfare system
Strengthen research studies concerning financial stability and Newly construct and remodel the Bank of Korea headquarters
macroprudential policy buildings to strengthen security and safety
Respond effectively to changes in the international financial Make effective use of and strengthen the systematic management
regulatory environment of knowledge and information
3 Work to Promote Stability of the Financial and Foreign Expand and upgrade IT services
Exchange Markets
Enhance the shock absorption capacities of the financial and Source: The Bank of Korea.
foreign exchange markets
Step up monitoring and analysis concerning the current status of
and trends in the financial and foreign exchange markets
35
2. Monetary Policy credibility of its monetary policy, the Bank

has carried out periodic reviews and expla-
While also focusing on financial stability nations of its inflation targeting regime
through the establishment and implementa- through the Monetary Policy Report, a
tion of efficient monetary and credit policies, statutory report submitted to the National
the Bank of Korea devotes its utmost efforts Assembly four times a year. If the CPI infla-
to the sound development of the national tion rate exceeds the inflation target by
economy with the aim of securing price sta- more than ±0.5 percentage points for six
bility. The Bank has selected inflation target- consecutive months, the Bank holds an infla-
ing as its operational framework for mone- tion briefing session to explain the reasons
tary policy, and under its inflation-targeting for its deviation from the target level, the
regime the policy decisions are made based Bank’s forecast for CPI growth going for-
upon comprehensive consideration of issues ward, and the future directions of its mone-
such as economic growth and financial sta- tary policy to achieve the inflation target.20)
bility, in addition to inflation conditions. In 2017, through its four Monetary Policy
In order to achieve its policy objectives Reports, the Bank reviewed and explained
effectively, the Bank of Korea determines the conditions related to its inflation target
the Base Rate and also operates lending and operations. As the inflation rate has stabi-
deposit facilities, carries out open market lized at the Bank’s inflation target level, no
operations, and utilizes the reserve require- separate inflation briefing sessions were held.
ment system.
<Figure III- 1> Inflation target and CPI
(Year-on-year)
A. Inflation Target 6
(%) (%)
6
3.0±1%
5 (Inflation target) 5
The Bank of Korea has since 2016 set a 2.5~3.5%
(Inflation target)
medium-term inflation target of 2.0 percent, 4 4
based on the year-on-year rate of increase in 2.0%
consumer price inflation (CPI). The Bank 3 (Inflation target) 3
has implemented monetary policy so as to

2 2
keep the inflation rate largely in line with its
inflation target. Consumer prices rose by 1.9 1 1
percent during 2017, thus diverging from
the trend of low inflation seen since 2013 0 0
2010 2011 2012 2013 2014 2015 2016 2017
and showing a generally upward trend near Sources: The Bank of Korea, Statistics Korea.
the inflation target level.
In order to enhance the transparency and
20) If inflation continues to deviate from the target by more than ±0.5 percentage points, the Bank continues to hold sessions every three months
to analyze the factors behind it.
36
B. Base Rate Federal Reserve, had also become cause for

caution.
During 2017 the Bank of Korea main- During the second half of the year the
tained its accommodative monetary policy Bank raised the Base Rate by 0.25 percent-
so as to ensure that the economic recovery age point in November, to 1.5 percent per
was sustained and the CPI growth rate annum. This policy decision was made in
could approach its target level over a medi- reflection of the expectation that the domes-
um-term timeframe.21) During this process tic economy would maintain a strong pace
the Bank also paid significant attention to of growth at its potential level, and that
financial stability, and closely monitored a inflation would gradually approach the

variety of factors including changes in the Bank’s inflation target level. It was also
monetary policies of major central banks, made in consideration of the fact that, if the
trading conditions vis-à-vis major countries, Base Rate were left unchanged, the real
the pace of increase in household debt, and effects of the Bank’s accommodative mone-
geopolitical risks.22) It in addition adjusted tary policy might lead to a buildup of imbal-
the extent of accommodation of its mone- ances in the financial markets.
tary policy in line with the economic recov- General financial conditions remained
ery, in a change from the previous policy accommodative. Long-term interest rates
direction focused on responding to the rose from August, on the back of the expec-
weak growth and low consumer prices. tations of a Base Rate hike, but after the
During the first half of the year the Base rate was raised in November interest rates
Rate was maintained at 1.25 percent per gradually fell and stabilized. The accom-
2. Monetary Policy
annum. The policy decisions to do so, modative policy environment, coupled with
despite the increased rate of domestic eco- the government’s economic stimulus mea-
nomic growth, were made in reflection of sures including the implementation of its
the fact that domestic consumption had not supplementary budget, played a positive role
fully recovered and high uncertainties in supporting solid domestic economic
remained both domestically and abroad. growth. However, while the rate of house-
With regard to inflation, consumer prices hold debt growth slowed compared to its
had risen by around 2 percent year-on-year, 2015-16 levels, under the effects of the gov-
owing to the increased global oil prices, but ernment’s strengthened efforts to manage
the inflationary pressures from the demand household debt as well as the rise in market
side remained weak. In addition, the likeli- rates, concerns remained about the accumu-
hood of increased volatility in the domestic lated financial imbalances as the rate of
and global financial and foreign exchange increase in household debt remained above
markets, due to the rate hikes by the U.S. its normal years’ average.
21) For more information, see “Minutes of the Monetary Policy Board Meeting”.
22) In 2017 six of the eight Monetary Policy Board meetings to set the monetary policy directions decided on the Base Rate unanimously.
Minority comments by Board members were made at two meetings, with Lee Il Houng suggesting a 0.25 percentage point increase in
October, and Cho Dongchul recommending a freeze in November.
37
<Figure III- 2> Bank of Korea Base Rate <Table III- 2> Loans1) of the Bank of Korea
(As of year-end)
(% per annum) (% per annum) (hundred million won)
4 4
Outstanding
Change
2016 2017
3 3 Bank Intermediated
173,285 171,855 -1,430
Lending Support Facility
(March 12, 2015) Total 173,285 171,855 -1,430
2 2 Note: 1) Exclude loans to government.

(June 9, 2016) Source: The Bank of Korea.
(June 11, 2015)

1 1
(November 30, 2017) At the end of 2017 the volume of the
Bank’s deposits held totaled 112.48 trillion
0 0 won, 21.35 trillion won lower that at year-
2015 2016 2017
end 2016. Among them, won-denominated
deposits had declined by 5.17 trillion won,
and deposits in foreign currencies by 16.19
trillion won.
C. Lending and Deposit Facilities
<Table III- 3> Deposits with the Bank of Korea
(As of year-end)
The Bank of Korea offers lending and (hundred million won)
deposit services to financial institutions as Outstanding

Change
2016 2017
part of its role as a central bank responsible
Won deposits 720,019 668,368 -51,651
for monetary and credit policy. The Bank’s
Financial institutions 648,953 615,940 -33,013
current credit businesses include the Bank Non-resident1) 71,066 52,428 -18,638
Intermediated Lending Support Facility, Foreign currency
618,316 456,435 -161,881
deposits
Liquidity Adjustment Loans and Intra-day
Total 1,338,335 1,124,803 -213,532
Overdrafts, while its deposit businesses con-
Note: 1) Won deposits of international organization, including the IMF.
sist of Current Account Deposits, Fund Source: The Bank of Korea.
Adjustment Deposits and Monetary
Stabilization Account Deposits. Reform of Bank-Intermediated Lending
As of the end of 2017 the balance of the Support Facility
Bank’s won-denominated loans to financial
institutions stood at 17.19 trillion won, down In accord with the basic directions speci-
by 143 billion won compared to the end of fied in its「2017 Monetary Policy
2016. Operational Directions」of December last
year,23) the Bank of Korea reformed its Bank
Intermediated Lending Support Facility with
23) The Bank decided to rationalize this loan system from the medium- to long-term perspective, in consideration of financial and economic
conditions in Korea and abroad, SME funding conditions, etc. and to strengthen support for SMEs contributing to an expansion of the
growth potential, SMEs that are active in job creation, and regional SMEs that are temporarily suffering from liquidity shortages due to the
restructurings of large enterprises.
38
effect from September 2017. This was on ceiling of its Support Program for Regional
the one hand done to strengthen the facili- Enterprises.25)
ty’s support for SMEs that contribute to job The Bank also introduced a new Program
creation and the discovery of new growth for Stabilization of SME lending, in order to
engines, as well as regional SMEs that are alleviate the volatility in SME lending and
suffering from sluggish business conditions. ensure the smooth operation of credit chan-
It was on the other hand also done to nels besides the interest rate channel and
enhance the effectiveness of the Bank’s mon- thereby improve the effectiveness of its mon-
etary policy by strengthening the facility’s etary policy conduct. It was decided to oper-
counter-cyclicality. ate this program when necessary, in consid-

First, the Bank expanded and reorganized eration of overall financial and economic
its Support Program for High-tech and conditions and the funding conditions of
Other Start-up SMEs, renaming it the SMEs including the availability of credit to
Support Program for New Growth Engine them, with a focus on strengthening the
Development and Job Creation, thereby countercyclicality of the central bank lending
strengthening its financial support for SMEs facilities during the business and financial
that contribute to the discovery of new cycles. Separately, the Support Program for
engines of growth and job creation. The Facilities Investment and the Support
program grants preferential support to Program for Trade Financing (net increase
SMEs that invest large proportions of their basis) were terminated as of September, as
budgets in R&D, and to SMEs whose rates their periods of operation expired.26)
of contribution to the creation of new jobs The Bank in addition normalized opera-
2. Monetary Policy
are high. In order to encourage job creation tion of the 5 trillion won that it had tem-
through entrepreneurship, the minimum porarily added to the Bank Intermediated
requirement for the number of full-time Lending Support Facility ceiling in March
employees at a company eligible for support 2016, to thus maintain the total facility ceil-
was reduced from five to three, and the pro- ing at 25 trillion won.
gram was made permanent.24) To strengthen In November 2017 the Bank decided to
support for regional SMEs facing difficulties extend for one year, until November 2018,
in business management and employee the temporary program to support small
retention owing to factors such as restructur- scale businesses considering the fact that
ing in major companies and the generally financial burdens of these businesses were
weak recovery of consumption, the Bank expected to continue in the near future due
resumed operation of the special support to factors such as economic uncertainties
24) The support program for general startups, now a part of the Support Program for New Growth Engine Development and Job Creation, was
to have been terminated on August 31, 2017, but the regulation limiting its term of operation was rescinded.
25) The Bank decided to set the period of program operation at two years, and to utilize first the special support ceiling (1 trillion won) under the
ceiling (5.9 trillion won) of the existing Support Program for Regional Enterprises.
26) It was decided to continue support, under the Program for Stabilization of SME Lending, for the existing credit that financial institutions had
extended under the Support Program for Facilities Investment and the Support Program for Trade Financing (net increase basis) prior to
August 31, 2017.
39
and the possibility of market interest rates <Figure III- 3>Bank Intermediated Lending
Support Facility Ceiling and Interest Rate1)
rising. It was also decided to provide support
(trillion won) (% per annum)
through the Bank Intermediated Lending 25 2.5
Ceiling(left)
Support Facility for SMEs that had suffered Interest rate(right)
damage due to the earthquake in Pohang. It 20 2.0
was determined to utilize a total of 10 bil-

lion won to this end - 5 billion won from 15 1.5
the Bank Intermediated Lending Support

Facility’s reserves, and 5 billion won from 10 1.0
the Pohang Branch’s own funds.

5 0.5
<Table III- 4> Details of Bank Intermediated

Lending Support Facility Reform 0 0.0
(trillion won) 11 12 13 14 15 16 17
Before After Note: 1) 0.50~0.75% since April 1, 2015.
Program Ceiling Program Ceiling Notes
High-tech and
Other Start-up 5.0 New Growth -Temporary loan
Engine
SMEs
Development 6.0
ceiling increase Extension of Measures Recognizing MBSs
Temporary of 1 trillion won
ceiling
and Job
1.0 Creation made permanent Issued by HF as Collateral for Bank of
increase Korea Loans and for Use in Net
Trade Trade
1.5 1.5 Settlement
Financing Financing1)
Temporary -Takes over exclusive
ceiling 3.0 use of loans under
increase temporary loan In December 2017 the Bank of Korea
Facilities ceiling increase of 3
Investment
7.0 trillion won from decided to extend for one year, until the end
Support Program for
Trade Financing
of 2018, its measures recognizing mortgage-
Stabilization
- Takes over exclusive backed securities (MBSs) issued by Korea
of SME 11.0
use of loans under 8
Lending
Temporary trillion won loan Housing Finance Corporation (HF) as collat-
ceiling 1.0 ceiling of Support
increase Program for Facilities eral for commercial banks in obtaining loans
Investment
(including temporary
from the Bank of Korea and for use in
ceiling increase of 1 financial institutions’ net settlements.27) This
trillion won)
Small-scale Small-scale was done in view of the facts that the bur-
0.5 0.5
business business dens of banks holding MBSs following
Regional Regional
5.9 5.9 extensions of Relief Loans28) in 2015 were
Enterprises2) Enterprises2)
Total 3)
25.0 Total 3)
25.0 expected to continue through 2018, and that
Notes: 1) Support based on outstanding loans. there was a likelihood of banks’ demands for
2) Includes a special ceiling of 1.0 trillion won.
3) Includes 0.1 trillion won for reserves, which can be operated collateral securities increasing.29)
as necessary.
27) These measures were adopted in order to ease banks’ burdens following their coming to hold large volumes of HF-issued MBSs in the process
of their extensions of Relief Loans during the March to May 2015 period.
28) The "loan transfer program" is designed to convert the existing floating rate or interest-only mortgage loan into a government-led loan
transfer program with fixed interest rate and installment repayment method in order to improve the structure of household debt. Between
March and May 2015, a total of 31.7 trillion won (327,000 cases) was supplied.
29) In accordance with international standards in the field of payment settlement prepared by the BIS Payment & Market Infrastructure
Committee, it is necessary to increase the collateral payment ratio for net settlements gradually.
40
D. Open Market Operations greatly.30) In response to this, the Bank

reduced the scale of its MSB operations.
In its open market operations during However, it increased the amount of its liq-
2017, the Bank flexibly adjusted liquidity so uidity control operations through the use of
as to maintain the call rate at the level of short-term instruments for adjustment
the Base Rate set by the Monetary Policy including reverse repos and MSA deposits.
Board, applying diverse measures for this The volume of the Bank’s MSB operations
purpose including the issuance of MSBs, (average outstanding balance basis) declined
transactions through repurchase agreements significantly (by 6.5 trillion won) year-on-
(RPs), and accepting term deposits in its year, in line with the decrease in scale of the

Monetary Stabilization Account (MSA). The annual liquidity control required and the
Bank in addition strengthened its readiness aftereffects of the reduction of MSB issuance
for responding to factors causing volatility in in response to the bond market uncertainties
the financial markets, including the uncer- in late November and early December 2016
tainties about the monetary policy of the US that continued into the first quarter of 2017,
Federal Reserve and the possibility of and with the concerns about a possible Base
heightened geopolitical risks related to North Rate hike in the fourth quarter.31)
Korea, by reviewing and supplementing its Net reverse repos (reverse repos minus
plans for responding through open market repos; average outstanding balance basis)
operations. The Bank also continued its and the scale of MSA deposits (average out-
market-friendly operations for the control of standing balance basis) increased by 600 bil-
liquidity, by for example sub-dividing its lion and 4.6 trillion won respectively year-
2. Monetary Policy
MSB yields in accordance with standards in on-year, due to the flexible management of
the secondary market. the program in response to the anemic MSB
issuance. Notably, the significant increase in
Flexible Liquidity Adjustment MSA deposits was a result of the fact that,
in cases of failed bids in the MSB opening
During 2017 the scale of liquidity adjust- bond auctions held every Monday (the 2-
ment required (average outstanding balance year bond auctions are held every other
basis) was 201 trillion won, down by 1.3 tril- Wednesday), MSA biddings were held in
lion won from the previous year. This response on the following days (Tuesdays).
decline was attributable mainly to an
increase in reserve requirements caused by
the continuous growth in transferable
deposits, on top of a decline in the supply of
reserves as currency issuance expanded
30) If private sector currency demand increases, financial institutions usually respond by withdrawing money from the Bank of Korea, and the
reserve deposits at the Bank of Korea of these financial institutions decrease in the same amount as the resulting increase in currency issuance.
31) Meanwhile, the issuance of Monetary Stabilization Bonds rose slightly (by 2.5 trillion won) compared to the end of 2016 to stand at 170.9
trillion won. This was due largely to the base effect of the reduced volume of MSB issuance at the end of 2016.
41
<Table III- 5> The Scale of Liquidity Adjustment of Enhanced Capacity for Responding to
Open Market Operations
(Average basis)
Financial Market Uncertainties
(trillion won)
2017
2016 The Bank enhanced its capacities for
Year Ⅰ Ⅱ Ⅲ Ⅳ
Scale of liquidity
responding to uncertainties in the financial
202.3 201.0 201.4 203.4 202.1 197.0
adjustment required markets, including changes in the monetary
MSBs 176.7 170.2 168.6 171.1 172.7 168.5
policy of the US Federal Reserve and the
Repos net outstanding 13.8 14.4 15.0 15.9 13.8 12.8
possibility of increased geopolitical risks
Reverse repos 13.8 14.4 15.0 15.9 13.8 12.8
Repos 0.01) 0.0 0.02) 0.03) 0.04) -
related to North Korea, by reviewing and
MSAs 11.8 16.4 17.8 16.5 15.6 15.7 enhancing its open market operations
Notes: 1) Includes 1-day Repo(1.8 trillion won) on January 6, 2016. response plans. As uncertainties concerning
2) Includes 1-day Repo(1.8 trillion won) on January 11, 2017.
3) Includes 1-day Repo(1.4 trillion won) on May 10, 2017.
a rate hike by the Fed grew in March 2017,
4) Includes 1-day Repo(3 trillion won) on September 6, 2017. measures were taken to review the open
market operations response plans prepared
As a result, the proportion in the use of all for various stages of volatility, and in
liquidity control instruments accounted for September, when market volatility increased
by MSBs fell from 87.3 percent in 2016 to as investor sentiment was negatively affected
84.7 percent in 2017. On the other hand, by North Korea’s sixth nuclear test and
the proportions of net reverse repos and speculation about the possibility of addition-
MSA deposits were 7.1 and 8.2 percent al provocations, the Bank further enhanced
respectively in 2017, up from 6.8 and 5.8 its response plan guidelines.
percent in 2016. The Bank also responded through flexible
open market operations and adjusted the
<Figure III- 4> The Share in the use of the means of amount of MSBs issued to mitigate market
Open Market Operations1)
volatilities during October and November,
(%) when interest rate volatility rose based on
100 5.8
6.0 6.3 6.5 8.2
8.0 8.0 8.1 6.8 7.1 concerns about the possibility of a Bank of
80 Korea Base Rate hike.
60
Operation of Market-Friendly Liquidity
86.0 85.7 85.3 87.3 84.7
40 Control Methods
20
In November 2017 the Bank of Korea
0
subdivided the units used for the issuance of
2013 2014 2015 2016 2017 and bidding on MSBs (including redemp-
MSBs Reverse Repos(net) MSAs
tions), in a move to establish standards
Note: 1) Excluding negotiated transaction with Korea Finance
Corporation(3.48 trillion won, Issued in 2014 and matching those of the secondary market sys-
redeemed in 2015) and Korea Development Bank(3.45 tem.32) As a result the units applied for MSBs
trillion won, Issued in 2015, and redeemed in 2016).
32) At the times of issuance and redemption of MSBs, the units of the yields and the bidding rates were further narrowed from 0.01 to 0.005
percent, and the coupon interest rate sections of the coupon bond item names (coupon rate - maturity) were changed from four to five digits.
These changes took effect from November 13, 2017.
42
became consistent with the general interest rather than for the Bank to directly regulate
rate units used in the secondary market, to the process. Additionally, the Bank abolished
thereby enhance the consistency between the the regulations requiring institutions partic-
MSB issuance and secondary markets. ipating in its open market operations to sub-
Additionally, in accordance with this subdi- mit separate bids when bidding on behalf of
vision of units the Bank increased the num- agencies and when doing so independently
ber of bid interest rates for institutions par- for themselves.
ticipating in its open market operations from
four to six, to allow these institutions access
E. Monetary Policy
to more bidding opportunities.
Communication

In December the consignment process of
open market operations33) was revamped to
make it more rational. The Bank terminated The Bank of Korea continued its efforts to
its guidelines for consignment process, judg- strengthen its communication with market
ing it more reasonable for the consignees participants and the public concerning its
concerned and the consignors to agree on monetary policies.
these factors through independent contracts First, it improved its methodology for
<Figure III- 5> Monetary policy press conference

(September 27, 2017)
2. Monetary Policy
33) In accordance with the "Regulations for Open Market Operations," an institution eligible to participate in open market operations may
participate in open market operation bidding when commissioned to do so on its behalf by another eligible institution or by a non-eligible
institution.
43
communicating the monetary policy direc- nomic issues and the policy directions for
tions by providing more details on whether the Korean economy. The Bank also pro-
economic conditions fit the Bank’s economic mulgated its perspectives on current issues in
growth forecasts and on monetary policy monetary policy through active engagement
outlooks. The Bank formulated and distrib- with the press via formal and informal chan-
uted a monthly press release on the outlooks nels including Governor’s press conferences,
in the international financial and foreign and devoted significant efforts to improving
exchange markets, and also added the analy- its communication with the public by con-
sis of key events in its Monetary Policy veying a consistent stance on monetary poli-
Report. These actions were aimed at cy in the Governor’s New Year’s Speech
expanding the scope of disclosure regarding and Founding Anniversary Speech.
the materials discussed in its monetary poli- Separately, the members of the Monetary
cy decision meetings. In addition, the Bank Policy Board held press conferences for jour-
also enhanced the timeliness of its Monetary nalists from major domestic and foreign
Policy Reports, by including in them details media outlets, to strengthen the communica-
on the monetary policy decisions made dur- tion of monetary policy, and presented brief-
ing the same months as their publications. ings on the directions of monetary policy as
Members of the Bank of Korea, including well as the states of the financial markets and
the Governor, have communicated actively the economy. Since 2017 the Monetary
with their counterparts in different areas of Policy Board has increased the frequency of
society including the National Assembly, these press conferences to five per year, and
business, the financial industry, academia has revamped their format so that they begin
and the media. Bank of Korea representa- with a Board member presenting a briefing
tives attended sessions of the National on topics regarding monetary policy and key
Assembly five times during 2017, to present economic issues, after which there is a Q&A
briefings on the Bank’s policies and opera- session. The Bank also made active efforts to
tions, and updates on the current state of communicate with the public during 2017 by
the economy and the financial markets, and hosting 30 seminars and speeches targeted at
take part in extended Q&A sessions. The academics, business executives, teachers and
Bank also held Economic Review Meetings, college students, in addition to numerous
with leading figures from major research interviews with the press.
institutes and academia (four times), and Monetary Policy Board members partic-
Financial Council Meetings, with presidents ipated as speakers and discussion panelists at
of domestic banks (three times), to exchange the “Tsinghua PBCSF Global Finance
views on domestic and global financial issues Forum 2017” held in Beijing, China on June
as well as monetary policy. Additionally, it 3, and at the “Ninth Annual Conference by
held conferences to which it invited leading CRBP & RBWC” held in Cusco, Peru on
scholars in economics from around the July 24. At these conferences they
world, while participating actively in major exchanged in-depth views on global eco-
global conferences to discuss key global economic conditions with executives from major
44
<Figure III- 6> Visit to PyeongChang Winter Olympics Organizing Committee

by Members of the Monetary Policy Board
(May 26, 2017)

2. Monetary Policy
central banks and leading figures from the Olympic Games and learned about the
financial sector. Board members also led or preparations for them, while visiting the
participated in a range of seminars, through PyeongChang Winter Olympics Organizing
which they communicated actively with rep- Committee and the event facilities.
resentatives from academia, the government
Main communication activities
<Table III- 6>
and various relevant organizations.
by members of the Monetary Policy Board
Members of the Monetary Policy Board
Category Major Participants Meeting Cycle
also visited the Bank of Korea’s Daegu-
Major press reporters at
Gyeongbuk Branch and toured the facilities Press conferences 5 times a year
home and abroad
of the Minting Department of the Korea Academic activities
Directors of economic research
institutes, professors, and Often
Minting and Security Printing Corporation and lectures
college students
(KOMSCO), and discussed topics relevant to Executive members of central
International banks and leading figures from Often
the regional economy and to issues related to seminars international finance circles
currency minting and circulation. Separately, Regional Executive members of regional
companies economic organizations and Often
at the Gangneung Branch, members engaged conferences CEOs of SMEs
in an in-depth discussion of the economic Source: The Bank of Korea.
effects of Korea’s hosting of the Winter
45
3. Efforts to Enhance evaluating financial stability, the Bank

Financial Stability increased the frequency of its Financial
Stability Meetings at which the Monetary
Policy Board evaluates financial stability
A. Analysis and Evaluation of conditions, so that they are now held quar-
Financial Stability Conditions terly.35) Taking into account the growing
importance of financial stability, and the
growing interest in financial stability among
In order to ensure the faithful fulfillment market participants, the Bank significantly
of its duties related to financial stability,34) enhanced the communication related to its
the Bank of Korea analyzed and evaluated Financial Stability Meetings. In this regard,
financial stability conditions in Korea from the Bank established new procedures: in the
various angles, and strove to suggest policy June and December meetings the Bank sub-
measures as necessary. The Bank worked to mits the Financial Stability Report36) which it
enhance its system for regular analysis and deliberates on and approves, to the National
evaluation of financial stability conditions, so Assembly and holds a press conference on
as to facilitate the preemptive detection and the day of the meeting, while in the March
provision of early warnings of potential risks and September meetings it distributes a
within the financial system, while also press release on the key discussion outcomes
strengthening its research on current finan- on the day of the meeting, separately from
cial stability issues to enable it to implement the minutes released two weeks after the
its macroprudential policies more effectively meeting, and also holds a press conference.
in response to changes in domestic and The Bank announces the results of its
overseas conditions. The Bank also carried analysis and assessment of the stability of the
out, with the Financial Supervisory Service, Korean financial system and potential risk
joint inspections of financial institutions to factors on a semiannual basis, through the
facilitate its identification of systemic vulner- Financial Stability Report. In 2017 the Bank
abilities, and participated actively in the focused on analyzing sector-specific stability
domestic and international policy discussions conditions as well as the potential risks that
on financial stability. economic participants such as households,
corporations and financial institutions might
Enhancement of Financial Stability face due to changes in financial and eco-
Conditions Evaluation nomic conditions including a further rise in
interest rates. Published in June, the
In efforts to strengthen its capacity for Financial Stability Report for the first half of
34) The December 2011 revision of the Bank of Korea Act stipulated an additional purpose of the Act as follows: "The Bank of Korea shall pay
attention to financial stability in carrying out its monetary and credit policies" (Article 1 (2), Bank of Korea Act).
35) The Bank of Korea holds the Financial Stability Meetings in March, June, September and December. It publishes its Financial Stability
Report after the June and December meetings each year, and during the interim periods the regular meetings of the Monetary Policy Board
in March and September are used for evaluating financial stability conditions.
36) “The Bank of Korea shall compile at least twice a year reports on the implementation of its monetary and credit policies and reports on the
status of the nation’s macro-financial stability, and submit them to the National Assembly” (Article 96, Bank of Korea Act).
46
2017 evaluated the causes behind the rising rates on the financial system, such as
buildup of household debt, one of the main changes in the interest coverage ratios for
risk factors in the Korean economy, and corporations and the major risks facing non-
suggested policy measures in response. The bank financial institutions due to the rate
Bank also examined the effects of the cur- hikes. Considering that unsecured household
rent financial and economic conditions lending was rising rapidly the September
including the stricter capital requirements on meeting examined unsecured loans to bor-
the risk-weighted assets of banks, as well as rowers with medium-level credit ratings. It
the major risks posed to non-bank financial also looked at the trends in loans and
institutions by the rising market interest deposits of Internet-only banks, and

rates. The Financial Stability Report for the reviewed the results of in-depth monitoring
second half of 2017, published in December, and analysis of the credit recovery statuses
evaluated the impacts of the increased mar- of defaulters using the relevant microdata.
ket interest rates on the debt redemption The Bank also devoted efforts to compre-
burdens of households and corporations. It hensively evaluating the effects on the finan-
in addition examined the characteristics of cial system of changes in domestic and over-
the domestic household credit market in seas conditions, including the rising buildup
terms of the borrowers’ credit ratings and of Korean household debt and the normal-
the various financial sectors involved, and izations of monetary policy taking place in
suggested measures for improvement. The major countries. Utilizing its Systemic Risk
Bank also analyzed the mechanism through Assessment Model for Macroprudential
which the risk of default contagion across Policy (SAMP),37) the Bank conducted stress
3. Efforts to Enhance Financial Stability

financial sectors spreads to the financial sys- tests to assess domestic banks’ resilience to
tem as a whole, through the structure of potential risks such as hikes in market inter-
financial sector interconnectedness consider- est rates and a drop in housing prices. Based
ing the characteristics of the various finan- upon its systematic analysis of the pathways
cial instruments traded. of risk transmission across financial sectors,
In the Financial Stability Meetings of the Bank also laid the foundation for estab-
March and September, the Bank concentrat- lishment of an integrated stress test model
ed its capabilities on comprehensive evalua- encompassing both the banking and the
tions of factors causing financial instability non-bank financial sectors.
such as vulnerabilities within the financial In addition to its Market Intelligence (MI)
system, and on assessing financial institu- System, established in 2016 for the purpose
tions’ resilience. The March meeting evalu- of systematic collection and utilization of
ated the loan soundness of self-employed necessary information on the financial mar-
business owners, while preemptively analyz- kets, to enable it to fulfill its duties for finan-
ing the effects of the rising market interest cial stability and implement its monetary
37) SAMP is an integrated model developed in July 2012 that allows researchers to use a single platform for conducting macro stress tests and
measuring systemic risks, which are essential for the implementation of macroprudential policy.
47
and credit policies, the Bank established a tions and overseas central banks on topics
Financial Stability Intelligence (FI) System in such as digital financial innovation and the
August 2017, and has been operating it to international financial linkages.
facilitate its preemptive identification and
utilization of systemic risk information on Enhancement of Evaluation of Systemic
the vulnerabilities in and resilience of the Risk Factors through Joint Examinations
financial system.38) of Financial Institutions
Implementation of Research on Financial To enable it to detect systemic risk factors

Stability in a timely manner the Bank of Korea
strengthened its joint examinations, together
To enhance its effective implementation of with the FSS, of financial institutions, and its
macroprudential policy, the Bank of Korea regular monitoring of them, while also step-
is committed to initiating a variety of ping up its cooperation with financial institu-
research projects and publishing reports on tions and supervisory authorities in Korea
their results. In 2017 the Bank analyzed the and overseas.
effects of the strengthened equity capital The Bank conducted four thematic exami-
requirements, through Basel III for example, nations of major banks in 2017, on various
on the changes in risk-weighted assets of topics, through which it evaluated the vul-
banks, and also analyzed the characteristics nerabilities involved in their lending to
of the recent household credit market, and households and self-employed business own-
included the results of both analyses in its ers as well as the banks’ management of
Financial Stability Report. With the aim of their credit risks. The examinations of
examining long-term financial stability con- banks’ household lending examined borrow-
ditions, the Bank also analyzed the influ- ers’ abilities to repay their debts, as well as
ences of population aging on the housing banks’ risk management, while the examina-
market and financial industry, and published tions of their loans to self-employed business
an analytical report on the research out- owners looked into the risks related to their
comes. Besides these activities the Bank col- loans to real estate and leasing businesses
laborated with experts in Korea in conduct- and to self-employed business owners who
ing 11 joint research projects, on topics such have taken out multiple loans. The thematic
as the development of a financial stability examinations of the statuses of credit risk
forecasting model using big data, and the management evaluated the causes behind
effects of the monetary policy normalizations the herd behavior toward home mortgage
in advanced countries on financial stability, loans in the banking sector from the risk
while also conducting joint studies with management standpoint. Lastly, examina-
experts affiliated with international organizations carried out of the domestic branches of
38) MI and FI are financial intelligence systems designed to facilitate the systematic collection, sharing and utilization of information on financial
and economic conditions through direct contacts with financial market participants, supervisory institutions, academia, and international
financial organizations.
48
foreign banks closely examined changes in chief risk officers and engaging in exchanges
the business operations of domestic branches with their section heads in charge of credit
of European and U.S. banks in Korea. By and risk management.
also carrying out two risk examinations of Meanwhile, the Bank also participated in
individual banks, the Bank of Korea checked the supervisory colleges39) hosted by supervi-
on the potential risks specific to the two sory authorities in major countries for
banks concerned. Standard Chartered Bank, HSBC, Citibank
and Deutsche Bank, where it shared opin-
<Table III- 7> The Bank of Korea’s on-site joint examination ions about the management strategies, busi-
(number)
ness performances and risk management of

2013 2014 2015 2016 2017
these global banks, and discussed the current
General
examination
7 4 2 3 2 developments and future directions of their
Thematic recovery and resolution plans for cases of
1 3 5 3 4
examination emergencies.
Participation in Discussions of Domestic

Following completion of its joint examina- and International Financial Stability
tions of financial institutions, the Bank pro-
vided the findings to the government and The Bank of Korea participates actively in
supervisory authorities, while also including the discussions taking place in international
the main inspection findings in the Financial organizations on financial regulatory reforms
Stability Report, to ensure that the policy aimed at preventing the recurrence of finan-

authorities and financial market participants cial crises, and endeavors to smoothly imple-
would be able to recognize, manage and ment these regulations in Korea. As a mem-
respond to risk factors inherent in the finan- ber institution of the Financial Stability
cial system. The Bank also held workshops Board (FSB) and the Basel Committee on
with regulators responsible for the joint Banking Supervision (BCBS),40) the Bank
examinations, as well as ad hoc conferences, underwent the FSB peer review41) of Korea
reinforcing its cooperation with the regulato- in 2017 together with other related domestic
ry authorities thereby, and strove to institutions, while also gathering the views of
strengthen its communication with the finan- domestic banks and then working to reflect
cial institutions concerned by providing Korea’s positions so as to protect the domes-
briefings on the inspection results for their tic financial industry from experiencing
39) A supervisory college is a structure comprised of the supervisory authorities from the home country in which the headquarters of a major
international bank are located and the host countries in which its overseas subsidiaries and branches operate. It discusses issues such as the
management status and trends in supervision of the relevant bank.
40) The Bank of Korea participates in five working groups of the FSB, and 13 of the BCBS.
41) Since 2010 the FSB has been conducting peer reviews of the financial systems and supervisory policies in its 24 member countries in regular
order. In the FSB peer review of Korea in 2017 it was found that Korea has made considerable progress in improving its risk management
and resolution framework, and has preemptively responded to risks related to the non-bank sector. It was recommended that Korea
implement simulation-based trainings in preparations for emergencies, improve its prudential regulations of non-bank depository institutions,
and enhance supervision of the Korea Federation of Mutual Credit Cooperatives.
49
excessive pressures in the process of Basel III Group for Managing Household Debt to
regulatory reform completion.42) draw up “Comprehensive measures for
The Bank in addition participated actively Household Debt Management” (of October
in the discussions of financial stability in the 24) in collaboration with the government
Asia-Pacific region as a member institution and the supervisory authorities, and to eval-
of the FSB Regional Consultative Group for uate their effects. The Bank also took part in
Asia and of the Executives Meeting of East the Macroeconomic Finance Meeting,43) to
Asia & Pacific Central Banks (EMEAP) examine the effects of the increased uncer-
Working Group on Banking Supervision tainties about domestic and overseas finan-
(WGBS), and contributed to presenting cial and economic conditions, as well as fac-
opinions from the Asia-Pacific region to tors causing unrest in the financial and for-
international organizations related to finan- eign exchange markets, and discussed joint
cial stability, and to other institutions con- measures for responding in cooperation with
cerned in major countries, through coopera- the government and other financial agencies.
tion with its fellow member countries of It in addition consulted with the Financial
these bodies. Services Commission and the Ministry of
Through consulting with the Financial Strategy and Finance to ensure proper
Services Commission and the Financial application of the countercyclical capital
Supervisory Service, and hosting meetings buffer regulations44) in accord with the level
with the chief risk officers of banks, the of private credit and the macroeconomic
Bank shared information about the global and financial conditions in Korea.45)
financial regulatory reforms and collected
opinions actively across the financial indus-
B. Macroprudential Policies for
try.
Domestically, the Bank worked to present the Foreign Exchange Sector
solutions to the household debt problems in
concert with the government and related The Bank of Korea evaluated the condi-
financial agencies. The Bank strengthened tions for implementation of its macropru-
its monitoring of household debt through dential policies for the foreign exchange sec-
meetings of its Household Debt Task Force, tor on a constant basis, by enhancing its
while also participating in the Consultative analysis of key risk factors in the global
42) The central bank governors and heads of supervisory authorities of BCBS member countries finalized the Basel III package of reforms that
had been promoted since the global financial crisis, by approving the reforms concerning credit and operational risks, the leverage ratio, and
the capital floor in December 2017.
43) This consultative body was created in July 2012, with its members comprising deputies from five agencies (the Bank of Korea, the Ministry of
Strategy and Finance, the Financial Services Commission, the Financial Supervisory Service and the Korea Deposit Insurance Corporation).
Its regular and ad hoc meetings are chaired by the Vice Minister of Strategy and Finance.
44) The countercyclical capital buffer regulations consist of dynamic capital requirements that enhance banking system resilience and alleviate the
procyclicality of credit supply, by requiring the accumulation of additional capital during booms and utilizing it for loss compensation and
provision of loanable funds during crises. The countercyclical capital buffer regulations have been introduced and implemented since 2016.
Through consultations with the Ministry of Strategy and Finance, the Bank of Korea and other related institutions, the Korea Financial
Services Commission sets the countercyclical capital buffer rate (0-2.5 percent) on a quarterly basis.
45) In 2017 the FSC decided to set the countercyclical capital buffer rate for banks and bank holding companies at zero percent.
50
financial markets and the foreign exchange macroprudential policies for the foreign
market as part of its responses to the rising exchange sector through inspections of for-
uncertainties in Korea and abroad. Notably, eign exchange banks and foreign currency
as market volatility worsened in 2017, affect- brokers, and consultations with the other
ed by the launch of a new government in related institutions.
the U.S. and continuing uncertainties about
its economic policy, by the policy interest
C. Strengthening of Multilayered
rate hikes and reduction in its balance sheet
by the U.S. Federal Reserve, and by the Financial Safety Nets
escalated geopolitical risks related to North

Korea, the Bank strengthened its monitoring Extending Currency Swap Agreement
of global capital flows as well as the in- and between Korea and China, and Signing
out-flows of funds for investment in Korean New One with Canada
securities by foreigners, and sought preemp-
tive policies in response. The Bank of Korea worked diligently to
Meanwhile, the Bank also contributed to strengthen its network of bilateral currency
the enhancement of financial system stabili- swap agreements with other central banks,
ty, by promoting the structural soundness of in consideration of the significance of cur-
foreign currency borrowings at foreign rency swaps to financial stability as a form
exchange banks through the ceilings on of secondary foreign exchange reserves.
banks’ forward exchange positions,46) and the Early in 2017 the Bank renewed its existing
Macroprudential Stability Levy47) system, as currency swap agreements with Malaysia in

well as by participating in the process of January, Australia in February and
restructuring the relevant systems through Indonesia in March as they were due to
means such as introduction of the foreign expire. Notably, the Bank agreed to double
currency Liquidity Coverage Ratio (LCR)48) the size of its bilateral currency swap agree-
as an official regulation. The Bank also con- ment with Australia, while newly adding the
ducted frequent examinations of trends in function of financial stability to its purposes.
the assessments of the domestic economy by In the second half of 2017 the Bank extend-
international credit rating agencies and glob- ed the currency swap agreement between
al investment banks, and of financial institu- Korea and China in October, adhering to
tions’ statuses in terms of their foreign cur- the principle of separating economic from
rency liquidity, while striving to improve its political concerns amid the growing geopo-
46) The ceilings on banks’ forward exchange positions are aimed at limiting currency-related derivatives positions such as forward exchanges,
foreign exchange swaps and currency swaps to certain levels. (The ceiling for domestic banks is 40 percent of their equity capital at the end of
the previous month, and for the branches of foreign banks it is 200 percent.)
47) Under the Macroprudential Stability Levy regulation, a rate of 10bp is imposed on the balance of a bank’s non-deposit foreign currency
liabilities with remaining maturities of one year or less, with discounted rates applied if the weighted average maturity exceeds two years
(discounts of 2bp for an average maturity longer than 2 years, 3bp for a longer than 3-year maturity, and 4bp for a maturing longer than 4
years).
48) Foreign currency Liquidity Coverage Ratio (LCR) = High-quality liquid foreign currency assets / Foreign currency net cash outflows for next
30 days (outflows - inflows).
51
litical risks in Northeast Asia due to North Meanwhile, the Bank continued its efforts
Korea’s nuclear tests and to the THAAD- to increase utilization of the local currencies
related dispute between South Korea and involved in the swaps, and to promote insti-
China. The Bank has also been pursuing tutionalizations of the currency swap agree-
currency swap agreements with key currency ments, through for example utilization of the
countries since the beginning of last year, proceeds of the Korea-China currency swap
and as a result signed a currency swap agreement to support trade settlement
agreement with Canada in November. In between the two countries.
this way the signing of new currency swap
agreements with key currency countries, as Improving Functions of Financial Safety
well as the extensions in due order of exist- Nets in Region
ing currency swap agreements reaching their
maturities, has significantly improved The Bank of Korea also devoted efforts to
Korea’s multilayered financial safety nets.49) strengthening the financial safety nets in the
region. First of all, the Bank took part
<Table III- 8> Current Situation of Korea's Currency Swap
Agreement Signings
actively in the Finance Ministers’ and
Central Bank Governors’ meetings of the
Most recent
Maximum amount date of ASEAN+3 to improve the operational readi-
Type Counterparty Maturity
(U.S. dollar basis ) signing and
1)
extension ness of Chiang Mai Initiative

Canada
No maximum
Nov. 2017 Unspecified
Multilateralization (CMIM), the multilateral
amount
currency swap agreement among ASEAN+3
360 billion CNY/
China
6.4 trillion KRW
Oct. 2017 Oct. 2020
member countries. The Bank also took the
(about 56 billion
dollars) lead in revising the CMIM Agreement,50) as
115 trillion IDR/ the central bank of one ASEAN+3 co-chair
10.7 trillion KRW
Indonesia Mar. 2017 Mar. 2020
(about 10 billion country in 2018, while working to coordi-
dollars)
Local
10 billion AUD/
nate the opinions of the related countries
Currency
swaps Australia
9 trillion KRW
Feb. 2017 Feb. 2020 and enhance cooperation to ensure a
(about 7.7 billion
dollars) smooth revision process.
15 billion MYR/
5 trillion KRW
Malaysia Jan. 2017 Jan. 2020
(about 4.7 billion
dollars) D. Activation of Emergency
20 billion AED/
5.8 trillion KRW
Discussion
of
Response System against
UAE Oct. 2013
(about 5.4 billion
dollars)
extension
underway Financial Instability
U.S. dollar
CMIM 38.4 billion dollars2) Jul. 2014 -
swaps
Notes: 1) Based on the exchange rates when the initial currency swap The Bank of Korea worked to maintain
agreements or their extensions were concluded.
2) The total amount of CMIM is 240 billion dollars, and Korea's
the stability of the financial markets by acti-
contribution and the maximum amounts that it can be vating its emergency response system at
drawn are 38.4 billion dollars each (16 percent).
49) Following these the Bank strengthened its efforts to conclude additional currency swap agreements with major countries, leading to the signing
of a new currency swap agreement with Switzerland in February 2018.
52
times of occurrence of financial turbulence

in Korea and abroad, in order to conduct
more stringent monitoring of the movements
of price variables such as interest and
exchange rates and of the flows of invest-
ment in Korean securities by foreigners.
During events including the Constitutional
Court’s decision to impeach the President
(March), the series of missile launches by
North Korea (July to September and

November), North Korea’s sixth nuclear test
(September), and the U.S. Federal Reserve’s
policy rate hikes (March, June and
December), the Bank convened meetings of
its Monetary and Financial Action Task
Force,51) as well as its emergency Financial
and Economic Conditions Review and
Executive Meetings, led by the Governor,
and reviewed reactions in the domestic and
international financial markets while com-
prehensively evaluating potential responses
to instances of market instability. It in addi-

tion devoted efforts to preventing the exces-
sive spread of market anxieties by strength-
ening its communication with market partic-
ipants.
50) This revision of the CMIM Agreement is being implemented as part of the first periodic review to overhaul the agreement.
51) The Task Force consists of the Senior Deputy Governor, the Deputy Governors in charge of monetary policy and international affairs, and
the heads of the relevant departments, and carries out comprehensive evaluations of the financial and foreign exchange markets during events
of domestic or foreign financial unrest.
53
BOX
III-1 currency countries. The amount of the three-year curren-

cy swap agreement with the Swiss National Bank is 10
billion Swiss francs, or 11.2 trillion won (approximately
Korea’s Currency Swap 10.6 billion dollars). The agreement is subject to exten-
sion if agreed upon by both parties.
Agreement Signings with The sovereign credit ratings of Canada and
Canada and Switzerland, Switzerland, both traditionally considered financial and

economic powerhouses,52) have been set at the highest
and Their Significance level of AAA by all three major global credit rating agen-
cies. The two countries are among the six key currency
In view of the significance of currency swaps as key countries belonging to a standing network of bilateral
instruments for financial stability and international finan- swap lines.53)
cial cooperation, the Bank of Korea sought continually to The currency swap agreements with these two key
sign new agreements with key currency countries currency countries is particularly meaningful for Korea as
throughout 2017. As a result it concluded new currency it has secured thereby a strong backstop in the foreign
swap agreements with the Bank of Canada (November exchange sector to utilize in cases of financial crisis,
2017) and the Swiss National Bank (February 2018), to which has significantly enhanced Korea’s financial and
thereby expand Korea’s multilayered financial safety nets economic stability.
to include key currency countries. Furthermore, the signing of these currency swap agree-
Unlike other currency swap agreements, the swap line ments signify that the major advanced countries of
with the Bank of Canada is a standing agreement that Canada and Switzerland acknowledge the financial sta-
does not specify any maturity or maximum swap amount bility of Korea's financial sector and economy, and this
in advance, that are the same terms and conditions as has also contributed significantly to improving Korea’s
those of Canada’s bilateral swap lines with other key sovereign credit ratings.
<Figure III- 7> Signing Ceremonies of Bilateral Currency Swap Agreement with Canada and Switzerland
52) According to the World Economic Forum (WEF), Switzerland and Canada ranked first and 14th respectively in the world in the category of
national competitiveness in 2017. In terms of the degrees of competitiveness of their financial industries, they were in eighth and seventh
places respectively.
53) The U.S. Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Swiss National Bank and the Bank of
Japan announced in October 2013 that their liquidity swap arrangements would be converted to standing arrangements that will remain in
place until further notice, as part of their cooperative efforts to stabilize the values of their respective currencies in cases of financial turbulence.
54
4. Currency Issuance Consequently, as of year-end 2017 the value

of currency in circulation totaled 107.8 tril-
lion won, higher by 10.8 percent than the
As the sole agency with the right to issue value at the end of 2016. By currency
banknotes and coins in Korea, the Bank of denomination, the trends of 2016 continued
Korea is committed to providing the public as the amount of 50,000-won banknotes in
with currency services necessary for their circulation increased by a net 14.3 percent
economic activities. During 2017 the Bank compared the previous year, while 10,000-
worked to ensure a stable currency supply in won notes decreased by a net 2.4 percent.
response to currency demand, while also

issuing commemorative currency to mark <Table III- 9> Banknotes and coins issued, withdrawn
and outstanding by denomination1)
and publicize national events. In addition,
(hundred million won)
the Bank strove to prevent counterfeit or 2017
forged banknotes from entering circulation, Net End of 2017
Issuance Withdrawal Issuance Outstanding
(A) (B) (A-B)
by for example publicizing methods for
Banknotes2) 386,456 281,385 105,071 1,054,154 (11.1)
counterfeit detection through a variety of
50,000 won 255,804 147,776 108,028 865,779 (14.3)
media organs, with the aim of creating an
10,000 won 122,278 126,119 -3,841 158,606 (-2.4)
environment in which the public can use 5,000 won 3,882 3,507 375 13,837 (2.8)
currency with a sense of confidence and 1,000 won 3)
4,491 3,983 508 15,932 (3.3)
security. The Bank also continually collected Coins2) 495 374 122 23,581 (0.5)
and destroyed damaged notes to maintain Total 386,951 281,759 105,192 1,077,735 (10.8)
the cleanliness of the currency in circulation. Notes: 1) Figures in parenthesis refer to percentage changes
4. Currency Issuance
compared with the end of previous year.
It in addition worked in cooperation with 2) Excludes commemorative banknotes and coins.
3) Includes banknotes with lower denominations.
financial institutions, Korea Minting, Source: The Bank of Korea.
Security Printing & ID Card Operating
Corporation (KOMSCO) and other relevant
institutions, to facilitate the effective perfor- KOMSCO produced and supplied 1.15
mance of its currency issuance and circula- billion banknotes and coins to the Bank -
tion duties. 20.3 percent less than in 2016. The number
of banknotes declined by 21.9 percent,
owing primarily to the increase in 50,000-
A. Issuance won notes, while the number of coins issued,
mainly 500-won and 100-won coins, fell by
Responding to Currency Demand 18.3 percent. The total value of currency
amounted to 11.6 trillion won, down by
During the course of 2017 the Bank of 42.4 percent compared to 2016.
Korea issued and supplied new currency
amounting to a total value of 38.7 trillion
won, while collecting 28.2 trillion won in
currency for removal from circulation.
55
<Table III-10> Production of banknotes and coins1) years, with motifs featuring all 22 national
Number(millions) Value(hundred million won)
parks in Korea.
2016 2017 2016 2017
Banknotes 775.0 605.0 200,750 115,350 <Figure III- 8>Commemorative Coins for the
(4.7) (-21.9) (29.9) (-42.5) Olympic(second set) and Paralympic
Coins2) 612.1 500.1 1,025 841 Winter Games PyeongChang 2018
(-1.3) (-18.3) (46.4) (-17.9)
Total 1,387.1 1,105.1 201,775 116,191 Type Design Character
(2.0) (-20.3) (29.9) (-42.4) (Obverse) (Reverse)
Notes: 1) Figures in parenthesis refer to percentage changes

・gold 99.9%
compared with the end of previous year.
2) Excludes commemorative banknotes and coins. Gold ・diameter
Source: The Bank of Korea. 30,000 won 35mm
・weight 31.1g
<Jwibulnori> <Emblem>
Issuance of 14 Commemorative Coins and
1 Commemorative Banknote ・gold 99.9%
Gold ・diameter
20,000 won 28mm
During 2017 the Bank of Korea issued <Gangneung Ice Arena <Emblem> ・weight 15.55g
and Gyeongpo Lake>
commemorative coins on four occasions.
(Obverse)
First, a total of 12 Commemorative Coins
for the Olympic Winter Games
PyeongChang 2018 (second set)54) and
Commemorative Coins for the Paralympic
<Figure Skating> <Ski Jumping>
Winter Games PyeongChang 2018 were
issued, on November 1 and December 19
respectively, to publicize and support the
Olympic Winter Games PyeongChang 2018 <Snowboard> <Freestyle Skiing>
in South Korea and abroad. The Bank in
addition issued 1 Commemorative Banknote
・silver 99.9%
Silver
on November 17, the first of its kind in 5,000 won
・diameter33mm
・weight 15.55g
Korea, for the Olympic Winter Games <Cross-Country Skiing> <Skeleton>
PyeongChang 2018 (for more information, (Obverse)
refer to Box III-2). Meanwhile, with the aim

of widely promoting the exquisite natural
environment in Korea and the future value of
<Nordic Combined> <Paralympic disciplines>
ecological preservation, the Bank also issued
(Reverse) (Reverse)
Korean National Park Commemorative
Coins on September 28, the motifs of which
were based on Jirisan and Bukhansan, to
start a new series of commemorative coins. <Emblem> <Emblem>
This series will be issued over the next seven
54) A total of 11 Commemorative Coins for the Olympic Winter Games PyeongChang 2018 (first set) were issued on November 18, 2016.
56
Type Design Character while leaflets outlining methods for easy

(Obverse) (Reverse) identification of counterfeits were distributed
to financial institutions and police stations.
The Bank also hosted its fourth UCC
・copper 65.0%, Currency Protection Campaign Contest, in
<The Official <Emblem> zinc 35.0%
Brass Mascot(Soohorang)>
which it granted awards to 10 out of a total
1,000 won ・diameter
40mm 82 videos submitted for the competition.
・weight 26.0g Rewards were also given out on two occa-
sions, in the first and second halves of 2017,
<The Official <Emblem> to police stations that had played vital roles

Mascot(Bandabi)>
in arresting counterfeiters.
The total number of counterfeits discov-
ered in 2017 was 1,609 notes, increased by
<Figure III- 9> Commemorative Coins of 231 over the 1,378 notes found in 2016,
Korean National Parks with the discovery of a large amount of
Type Design Character 10,000-won counterfeit notes having the
(Obverse) (Reverse) same serial number. However, the number
of counterfeits found per million banknotes
Silver
30,000 won
・silver 99.9%
was 0.3, the same level as in 2016.
(Jirisan)
・diameter
32mm
<Figure III-10> Counterfeits banknotes detected
・weight
Silver 14.0g (Number) (Number)
30,000 won 5,000 5,000
50,000 won 10,000 won
(Bukhansan)
5,000 won 1,000 won
Source: The Bank of Korea. 4,000 4,000

3,293
3,000 3,000
B. Circulation 2,000 1,609 2,000

1,378
Strengthening Publicity to Prevent 1,000 1,000

Counterfeit Circulation
0 0
2015 2016 2017
The Bank of Korea conducted a variety of
promotional campaigns to prevent the pro-
duction and circulation of counterfeit cur-
rency. Public advertisements were posted in Facilitating Currency Use by the Public
subway cars and buses and broadcast in
movie theaters, and various social media The Bank of Korea endeavors to improve
channels and smartphone applications were the overall cleanliness of circulated currency,
also used actively for promotional purposes, by identifying damaged notes that are unfit
57
for reuse among the currency collected from Facilitating Coin Circulation
financial institutions and individuals and dis-
carding them. During 2017 a total of 601.74 In collaboration with the Korea
million notes, valued at 3.77 trillion won, Federation of Banks, the Korean Federation
were identified as damaged and subsequent- of Community Credit Cooperatives, the
ly discarded. By currency type, the discards National Credit Union Federation of Korea,
comprised 534.57 million banknotes valued the Korea Federation of Savings Banks and
at 3.77 trillion won, and 67.16 million coins Korea Post, the Bank of Korea implemented
valued at 2.46 billion won. The amount of its Nationwide Coin Exchange Campaign,
currency turned in by individuals for carried out in nearly 20,000 branches of
exchange due to severe damage during the financial institutions across the nation
year totaled 4.60 billion won in value, up by throughout the month of June.55) Through
26.9 percent from 3.63 billion won in 2016. this campaign the Bank exchanged 295.6
Meanwhile, the Bank broadcast radio adver- million coins (worth 40.8 billion won), which
tisements nationwide in 2017 aimed at miti- was about 49.3 percent of the total amount
gating the excessive preference for new ban- of coins issued in 2016.
knotes by the general public, along with
campaigns promoting the clean use of
money and the reuse of coins.
<Figure III- 11> Winners of UCC Currency Protection Campaign Contest

(September 27, 2017, Seoul)
55) The Nationwide Coin Exchange Campaign has been generally carried out in May, but in 2017 it was held in June given the many national
holidays in May as well as the fact that the Bank of Korea’s Currency Department relocated to its Gangnam branch office during that month.
58
<Figure III-12> Destruction of banknotes and coins
(trillion won) (100 millions)

5 8
Value(left) Number(right)
4 3.8
7
3.4
3.1
3
6.2 6
6.0
2
5.5
5
1

0 4
2015 2016 2017
C. Domestic and International

Cooperation
The Bank of Korea continued to step up

its cooperation with the Korean National
Police Agency, the Korea Customs Service
and the National Forensic Service, through
frequent exchanges and sharing of informa-
tion on trends and characteristics of counter-
feit detection. It also analyzed the current
methods and levels of counterfeit production
by examining counterfeit notes provided to
it by the Prosecutors’ Office from concluded
investigations and trials. The Bank in addi-
tion participated in international conferences
including the biennial Pacific Rim Banknote
Conference and the Currency Conference,
to expand its networks with other central
banks and minting bodies while sharing
information on recent developments in
counterfeit banknote prevention instruments
and on major issues concerning the currency
and issuance systems.
59
BOX
III-2 lous detail.

In view of the fact that the commemorative banknote
is legal tender in Korea, the Bank applied the same high
Issuance of the Olympic level of anti-counterfeiting technology in their issuance
as it does for the currently-used 50,000-won notes. The
Winter Games main anti-counterfeiting technologies used include a
PyeongChang 2018 motion-windowed security thread, hologram, water-

mark, and color-shifting ink. The PyeongChang
Commemorative Banknote Organizing Committee for the 2018 Olympic and
Paralympic Winter Games requested issuance of the
On November 17, 2017 the Bank of Korea issued one commemorative banknote based on a special act,59) and
commemorative banknote, the first of its kind issued in the Bank accepted the request. The total amount issued
Korea, in order to promote widely, in South Korea and was 2.3 million notes (individual note basis) and all were
abroad, and support the success of the Olympic Winter acquired from the Bank by the Organizing Committee
Games PyeongChang 2018. The width and length of the and sold to the general public.
commemorative banknote, valued at 2,000 won, were
set at 140mm and 75mm respectively, setting it apart from <Figure III-13> The Olympic Winter Games PyeongChang
56)
2018 Commemorative Banknote
other banknotes in current use. The base color is gray,
representing the image of winter.
The obverse side depicts all of the disciplines of the
seven major international sports federations involved in Obverse
the Olympic Winter Games,57) with an image of speed
skating occupying the center surrounded by smaller
images of the other six disciplines. Speed skating was
chosen for the main design due to the symbolic meaning
of the sport, the first one in which Korea competed
under its own country's name during the Olympic Games
(Winter or Summer58)). The reverse side depicts a tiger
and a pine tree, symbols of Korea, derived from the Reverse
painting ‘Tiger and Pine Tree’ by Kim Hong-do of the late

18th century (collection of Leeum, Samsung Museum of
Art). The reverse side has a vertical design, the same as
the currently-used 50,000-won note. ‘Tiger and Pine
Tree’ is regarded as a masterpiece, which portrays the
eyes, fur and other aspects of a Korean tiger in meticu-
56) With a width of 140mm, the commemorative banknote is of a medium size between the currently-used 1,000-won (136mm) and 5,000-won
notes (142mm), and with a length of 75mm, it is 7mm longer than the existing notes in circulation (68mm).
57) Speed skating, Curling, Ice hockey, Ski jumping, Biathlon, Luge and Bobsleigh.
58) Three South Korean speed skaters competed in the fifth Winter Olympics in St. Moritz, Switzerland in 1948, in Korea’s first ever Olympic
Games participation.
59) The Special Act on Support for the 2018 PyeongChang Olympic and Paralympic Winter Games, Article 14 (Sales of Commemorative
Currency).
60
5. Payment and settlements comprised 51.8 percent of all

Settlement Business Korean won funds settled in 2017, up from
47.8 percent in 2016.
<Figure III-14> BOK-Wire+ Funds Transfer Values

The Bank of Korea operates BOK-Wire+, (Daily Average)
(trillion won) Securities settlement funds Call transaction funds (trillion won)
the RTGS system that processes large-value 400 Foreign exchange settlement funds Net settlement funds 400
funds transfers, while providing intraday liq- Transfers between BOK and
participants1)
Others
350 350
323.0
uidity support for financial institutions suf- 299.8
300 272.3 300
fering temporary shortages of settlement liq-

243.9
uidity, as a means to encourage the smooth 250 250
167.3
115.6 143.2
settlement of funds through this system. The 200 93.5 200
Bank also oversees the domestic payment 150 150
31.4 27.7 27.2
and settlement systems as a whole, and 43.9 18.4 19.3 19.3
100 14.9 16.9 16.8 16.9 100
works to improve their operating processes 14.2 14.8 14.5 15.3
13.6
50 50
in an effort to ensure their safety and effi- 63.8 75.1 78.3 77.0
ciency.60) In addition, it strives to strengthen 0 0

2014 2015 2016 2017
its cooperation with international organiza-
Note: 1) Includes payments on government and public
tions in the field of payment and settlement. bond transactions, Treasury funds transfers, and
BOK loans.
A. Operation of BOK-Wire+
5. Payment and Settlement Business

Intraday Liquidity Support
Steady Increase in the Amounts of
Securities Settlement Funds Transfers In order to prevent settlement risk across
BOK-Wire+ as a whole due to settlement
During 2017 the average daily volume delays and gridlock caused by participants’
and value of Korean won funds transfers temporary liquidity shortages, the Bank of
through BOK-Wire+ totaled 16,521 transac- Korea supplies BOK-Wire+ participants
tions and 323 trillion won, increases over with settlement funds to cover temporary
the previous year of 7.6 and 7.8 percent intraday liquidity shortages. In 2017 the
respectively. By type of settlement fund, the amount of the BOK’s intraday liquidity pro-
amount of call transaction funds declined vision averaged 2,374.1 billion won per day,
while securities settlement funds increased less than in the previous year. The amount
significantly, centering around inter-institu- of intraday overdraft provision61) averaged a
tion repo transactions. As a result securities daily 318.2 billion won, down by 16.3 per-
60) This refers to the central bank’s responsibility to conduct monitoring and regular or ad hoc assessments to enhance safety and efficiency in the
payment and settlement systems, as well as to implement improvements in the systems as needed.
61) This refers to credit that the Bank of Korea provides to banks on the condition of intraday redemption, with the objective of addressing their
temporary intraday liquidity shortages.
61
cent from 2016, while that of intraday RP62) bonds settlement system and Inter-institution
was a daily average 2,055.9 billion won, repo settlement system operated by the
down by 16.1 percent as the decrease in Korea Securities Depository, for its obser-
transactions of bond which is subject to vance of 18 of the total of 24 PFMI princi-
intraday repos by financial investment com- ples. The assessment found the systems to be
panies. in good overall compliance with the PFMI,
but that it needed to take steps to reinforce
<Table III-11> Supply of Intraday Liquidity its management of credit risk and liquidity
(Daily average)
(billion won, %) risk, to clearly define the time when settle-
2015 2016 2017 %Change2) ment is finalized for the Inter-institution
Intraday
394.5 380.2 318.2 -16.3 repo settlement system, and to establish a
Overdrafts1)
management system specializing in imple-
Intraday Repo 2,613.7 2,449.8 2,055.9 -16.1
Total 3,008.2 2,830.0 2,374.1 -16.1 mentation of the Guidance on Cyber
Notes: 1) Based on average net intraday overdraft balance obtained
Resilience for Financial Market
after subtracting the balances of the deposit accounts used Infrastructures. It was also judged that the
exclusively for settlement from the daily overdraft amounts.
2) A percentage change from 2016 to 2017. systems should reinforce its business continu-
ity plans so as to strengthen its operational
risk management, as well as establish a
B. Oversight and Risk cyber resilience management system in line
Management with global standards.
Assessment of Financial Market Joint Examinations of Payment and

Infrastructures Settlement Activities of Financial
Institutions
To improve the safety and efficiency of
the domestic financial market infrastructures To review the appropriateness of financial
(FMIs),63) the Bank of Korea conducts assess- institutions’ payment and settlement activi-
ments of them against the Principles for ties, the Bank of Korea and the Financial
Financial Market Infrastructures (PFMI),64) Supervisory Service conducted joint exami-
and recommends measures to address any nations during 2017 of two domestic banks
gaps and shortcomings identified. In 2017 and four financial investment companies.
the Bank conducted assessments of the OTC The Bank focused in particular on these
62) To shift the settlement through BOK-Wire+ of funds for securities transactions to an earlier time, and to mitigate the concentration of
settlement at around the closing time, a system for intraday liquidity support through the use of repo-type instruments was established under
Article 81 (2) of the Bank of Korea Act on February 20, 2012, targeting the Korea Exchange and the financial investment companies.
63) FMIs refer to multilateral systems used by economic entities for purposes of making regular payments and clearing, or settling or recording
financial transactions. They consist of systemically important payment systems (PS), central counterparties (CCPs), central securities
depositories (CSDs), securities settlement systems (SSSs), and trade repositories (TRs).
64) The PFMI are the new international standards for payment and settlement systems that were set and published in April 2012 by the
Committee on Payments and Market Infrastructures (CPMI) of the BIS in partnership with the International Organization of Securities
Commissions (IOSCO). The PFMI were established in response to major issues that had come to light due to the global financial crisis
regarding the need for structural reforms of the over-the-counter derivatives markets and the strengthening of international standards for
operation of financial market infrastructures.
62
institutions’ observance of regulations related domestic conditions, in order to assist insti-

to funds transfers and on their settlement tutions operating financial market infrastruc-
risk management. tures in assessing their own cyber-risk
The results of the inspections indicated response systems. These guidelines will be
that the domestic banks were managing utilized by financial market infrastructure
their intraday liquidity for payments and set- operating institutions and participants to
tlements properly, but that they needed to strengthen the efficacy of the response sys-
make certain improvements to address inad- tem through their carrying out of self-assess-
equacies in their systems for management of ments.
net settlement IT operational risks, and in

view of this the Bank recommended that Monitoring of Cryptocurrency Market,
they take supplementary actions. With and Conduct of Relevant Research
respect to some financial investment compa-
nies, the Bank recommended that they draw The Bank of Korea strengthened its moni-
up scenarios based on occurrences of funds toring in response to abnormal overheating
transfer system impediments and natural dis- in the cryptocurrency market, while partic-
asters, and conduct simulation drills to pre- ipating in joint task forces comprising the
pare for responding. The Bank also asked relevant agencies at the pan-government
the companies to prepare their management level to prepare necessary countermeasures.
systems to ensure timely responses and The Bank also participated actively in the
immediate reports to the Bank in cases of discussions of cryptocurrency through
emergencies such as IT system failures. international organizations such as the BIS

and the FSB. It plans to continue further
Preparation of Assessment Guidelines for research on cryptocurrency, and their
Cyber Resilience underlying distributed ledger technology,
while analyzing the impacts of the expansion
Cyber resilience,65) a concept enlarging on in cryptocurrency on the monetary system
that of cyber security, has attracted signifi- and the payment and settlement system, and
cant attention in the financial sector recently identifying potential measures for responding
due to the recurrence of hacking attacks and as needed.
the distributions of malicious code both
domestically and globally. In response the
Bank of Korea in August 2017 released
Cyber Resilience Assessment Methodology
for Korean FMIs, comprising 59 questions
based on the global standards66) localized to
65) This refers to the capacity to quickly restore core functions and resume operations following cyber-attacks, which are continually evolving in
sophistication.
66) The “Guidance on Cyber Resilience for Financial Market Infrastructures” (June 2016), established jointly by the Committee on Payments and
Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO).
63
C. Enhancement of Payment The daily average record of coins accumu-

and Settlement System lated from the pilot project participants
nationwide was 34,000, with a value of 6
Implementation of Pilot Project for million won. This project is evaluated as
“Coinless Society” having had a partial effect68) in reducing
social costs by directing public attention to
On April 20, 2017 the Bank of Korea the circulation of coins.
launched a pilot project for a “coinless soci-
ety,” to improve the convenience of cash <Table III-13> Accumulated Coins through
Pilot Project in 2017
payment for the public and reduce the social (Daily average)
costs of producing and managing coins. This (number of transactions, thousand won)
project involves a prepaid card service 2Q1) 3Q 4Q 20171)

allowing consumers to deposit the change volume 34,449 34,324 32,962 33,870
they receive after cash payments at partic- value 5,804 5,997 6,088 5,975
ipating offline stores including supermarkets Note:1) After implementation of pilot project(20 April 2017).
and convenience stores onto prepaid elec-
tronic payment means.
The pilot project was initiated with five D. International Cooperation
retailers (23,050 stores nationwide) and
seven prepaid e-finance business operators The Bank of Korea has served as the
participating. By the end of 2017 this had chair of the Working Group on Payment
however expanded, as a result of additional and Settlement Systems (WGPSS) under the
recruitment,67) to involve a total of six retail- Executives’ Meeting of East Asia-Pacific
ers (36,500 stores nationwide) and ten pre- Central Banks (EMEAP) since 2016. During
paid e-finance business operators. 2017 the Bank was very active, as the chair,
in conducting joint research, while initiating
<Table III-12>“Coinless Society” Pilot Project Participants the renaming69) and restructuring of the
(As of the end of 2017)
working group.
Prepaid electronic
Participants
payment means The Bank also participated actively, as a
Lotte(department store, member of the Committee on Payments and
L.POINT
mart, supermarket)
Market Infrastructures (CPMI) under the
Seven-Eleven Naver pay point, Cashbee
Bank for International Settlements (BIS), in
emart 24, emart SSG Money
CU Cashbee, T money, Hana money
major research and working-level
Cashbee, T money, Hana money, discussions70) for exchanging information,
GS25 Han pay, DGB upay while participating in the peer reviews of
Source: The Bank of Korea. implementation of the PFMI on the central
67) The Bank of Korea constantly recruits participants for this project from among prepaid electronic finance business operators who are
registered under the Electronic Financial Transactions Act and are also civil businesses linked to offline stores that are capable of
accumulating coins.
68) In 2017 the net issuance of coins fell to its lowest level since 1998 (-68.3 billion won) at 12.2 billion won, far below the annual average of 84.2
billion won during the 2000-2016 period.
64
counterparties of 20 major countries.

The Bank meanwhile continued its coop-
eration with central banks of developing
countries as well, by sharing its experiences
in the development and operation of pay-
ment and settlement systems, and also offer-
ing policy-related advice as called for,
through its training programs for staff of
developing countries’ central banks in the
Asia-Pacific region, in addition to visiting

fellowship programs in Korea for central
bank employees from Myanmar and
Indonesia.
69) The EMEAP Working Group on Payment and Settlement Systems will be renamed the "Working Group on Payments and Market
Infrastructures" from the second half of 2018.
70) These included reviewing the implementations of international standards, establishing PFMI further guidance for dealing with financial risks of
CCPs, and producing analytical reports on fast payment services.
65
6. Foreign Exchange and Bank examined the reactions in the global

International financial markets and discussed the subse-
quent impacts on the domestic foreign
Cooperation Affairs exchange markets and appropriate measures
for responding. In particular, at the times
A. Foreign Exchange Affairs when the impeachment of the South Korean
president was decided on in March, and
when geopolitical risks grew significantly fol-
The Bank of Korea worked during 2017 lowing North Korea’s sixth nuclear test in
to ensure stable operation of the foreign September, the Bank bolstered its monitor-
exchange markets in response to heightened ing by meticulously identifying trends in the
uncertainties at home and abroad, and to international financial markets and foreign
contribute to their advancement, while also exchange markets through a 24/7 monitor-
devoting efforts to invigorating the Won- ing system in cooperation with its overseas
Yuan Direct Trading Market and improving offices. It also examined and supplemented
the system for foreign exchange transactions. emergency response plans in the foreign
exchange sector in anticipation of deepening
Stabilizing Foreign Exchange Markets in market anxieties, while endeavoring to
Response to Domestic and International ensure that excessive herd behavior did not
Risk cause amplified exchange rate volatility.
In response to domestic and overseas risk Participating in Establishment of the FX

factors, including the normalization of its Global Code
monetary policy by the U.S. Federal
Reserve and the heightening of geopolitical As a member of the Foreign Exchange
risks related to North Korea, the Bank of Working Group operating under the Bank
Korea continued its efforts to maintain sta- for International Settlements (BIS), the Bank
bility in the foreign exchange markets. of Korea took part in establishment of the
Volatility in these markets expanded and FX Global Code. This global code of con-
concerns about foreign capital outflows grew duct for foreign exchange trading activities
with the Federal Reserve’s announcements was designed in response to foreign
of hikes in its policy rate and implementa- exchange market misconduct including the
tion of a balance sheet normalization pro- foreign-exchange manipulation scandal in
gram, as well as with the series of North the London market, with the aim of promot-
Korean missile launches starting in July. ing effective market functions by restoring
Accordingly, in meetings including those of trust and heightening integrity in the mar-
its Monetary and Financial Task Force71) the kets. Along with central banks in other
71) These included eight meetings of the Monetary and Financial Task Force (related to the meetings of the Federal Open Market Committee of
the U.S. Federal Reserve, the North Korean nuclear test, etc.), two executives’ emergency meetings (related to the impeachment of the South
Korean president), and one financial and economic conditions review meeting (during the Chuseok holidays).
66
Asian countries including Singapore, Hong Improving Foreign Exchange Transaction

Kong, Australia and India, the Bank of System
Korea declared its endorsement of the
Global Code when it was officially In cooperation with the government, the
announced in May 2017, and has since Bank of Korea worked to enhance the con-
worked to ensure that the Global Code takes venience and autonomy of individuals and
effective root in Korea.72) businesses in their conduct of foreign
exchange transactions, by allowing the oper-
Vitalizing of Won/Yuan Direct Trading ation of small-value overseas remittance
Market businesses,74) and expanding the scope of

exemptions75) from confirmation procedures
The Bank of Korea has continued its for banks and from reporting procedures for
efforts devoted to vitalizing the Won-Yuan their clients when engaging in foreign
Direct Trading Market. While promoting exchange transactions.
this market in Seoul by operating a market In addition, with the aim of establishing a
maker73) system, offering incentives to market sound transaction order, the Bank imposed
makers and convening the related meetings, an obligation on foreign exchange agencies
the Bank also worked in cooperation with prohibiting them from manipulating
the People’s Bank of China to facilitate insti- exchange rates and undermining the foreign
tutionalization of the Won-Yuan Direct exchange transaction order, and authorizing
Trading Market in Shanghai, which was the conduct of inspections to verify their
opened in June 2016. As a result the aver- compliance as necessary.
6. Foreign Exchange and International Cooperation Affairs

age daily volume of trading in the yuan in
the Seoul Direct Trading Market exceeded B. Reserve Management
2 billion dollars during 2017, making it the
fourth-most active overseas yuan trading
market after those in Hong Kong, London The Bank of Korea manages the national
and Singapore. foreign exchange reserves, which comprise
the country’s external payment of last resort,
based on the principle of enhancing prof-
itability while placing its top priority on
securing safety and liquidity. In order to
72) The Seoul Foreign Exchange Market Committee, which includes the Bank of Korea, became a member of the Global Foreign Exchange
Committee to manage the Global Code in the future, and the Seoul Code of Conduct was partially revised to reflect the Global Code (August
2017).
73) Twelve market-maker banks play the leading roles in formulating prices and providing liquidity, through continual quoting of bid and ask
prices in the Seoul Won-Yuan Direct Trading Market.
74) The Bank of Korea established specific standards under which a person (not a financial company) who intends to engage in a small-value
overseas remittance business shall maintain at least 2 billion won of his/her own equity capital, data processing equipment and staff, and a
computer network connected to a foreign exchange information concentration institution. He/she must also register with the Minister of
Strategy and Finance (Enforcement Decree of the Foreign Exchange Transactions Act, amended June 27, 2017).
75) For foreign exchange transactions, the amount below which a bank is exempt from the obligation of confirmation was raised from 2,000 to
3,000 U.S. dollars per transaction (Foreign Exchange Transactions Regulation, amended June 29, 2017).
67
preserve the value of its invested assets, the Tranching Reserve Assets
Bank places tight restrictions on investing in
assets with high credit risk such as irrecover- The Bank of Korea separates its foreign
able principal and interest. The Bank main- exchange reserves into the short-term liquid-
tains a high level of liquidity by investing its ity tranche and the investment tranche, in
foreign exchange reserves in assets that can accordance with its purposes in holding
be promptly liquidated in the global finan- them. The Bank also divides the investment
cial markets. It meanwhile also endeavors to tranche by management method into the
enhance profitability, considering, for exam- internally managed tranche and the exter-
ple, the holding costs of foreign exchange nally managed tranche.
reserves. The short-term liquidity tranche is invest-
As of the end of 2017, South Korea’s for- ed principally in short-term financial instru-
eign exchange reserves totaled 389.3 billion ments such as U.S. Treasury bills and
dollars, higher by 18.2 billion dollars than at deposits, since they involve minimal transac-
the end of the previous year. The country’s tion costs and can be immediately liquidated
foreign exchange holdings, including securi- enabling timely responses to frequent flows
ties and deposits (which account for the and temporary demands of foreign
majority of the foreign exchange reserves), exchange.
amounted to 379.5 billion dollars, up by In order to obtain stable profits while
17.8 billion dollars from the previous year- maintaining a high level of liquidity, the
end. Its special drawing rights (SDRs) had Bank manages its internally managed invest-
increased by 496 million dollars and its IMF ment tranche with a focus on long- and
position had decreased by 106 million dol- short-term bonds issued in major foreign
lars year-on-year, while it held 4.8 billion currencies, including government bonds,
dollars in gold, the same level at the end of agency bonds, corporate bonds and asset-
2016. backed securities. Although the Bank of
Korea manages the short-term liquidity
<Table III-14> Composition of foreign exchange reserves tranche and the internally managed invest-
(As of year-end)
(million USD) ment tranche separately, in cases where the
2015 2016(A) 2017(B)
Change balance in the short-term liquidity tranche
(B-A)
shows significant volatility owing to foreign
Foreign exchange reserves 367,961 371,102 389,267 18,165
Foreign exchange 358,514 361,701 379,477 17,776
reserve flows, the Bank transfers foreign
SDR 3,241 2,878 3,374 496 reserves swiftly between two tranches in
Reserve position in IMF 1,412 1,727 1,621 -106 order to maintain the short-term liquidity
Gold 4,795 4,795 4,795 0 tranche at an appropriate level.
Source: The Bank of Korea. To increase profitability through the uti-
lization of external expertise and the diversi-
fication of investment methods, the external-
ly managed investment tranche is entrusted
to renowned international asset management
68
companies and Korea Investment its holdings of U.S. dollar-denominated

Corporation (KIC), and comprises stocks as assets and increase those denominated in
well as bonds. Mostly being composed of other currencies such as the euro.
bonds with high credit ratings and listed Accordingly, as of year-end 2017 the U.S.
blue-chip stocks, the externally managed dollar accounted for 68.1 percent of the
investment tranche can be liquidated with- Bank’s reserve assets, 2.2 percentage points
out difficulty as needed. less than at the end of 2016.
At the end of 2017, 3.2 percent of the In terms of asset classes, the Bank expanded
Bank’s foreign exchange reserves were dis- the proportions of its investment in govern-
tributed in the short-term liquidity tranche, ment bonds which are liquid safe-haven assets

77.7 percent in the internally managed and in equity which is high-yielding assets
investment tranche, and 19.1 percent in the with good liquidity in order to cope effectively
externally managed investment tranche. with the upside and downside risks in the
global economy (Credit barbell strategy). The
Flexible Responses to Changes in Bank reduced the share of its holdings of non-
International Financial Markets government bonds, such as agency bonds with
medium-level safety and liquidity, so as to
Volatility in the international financial maintain the overall level of risk.
markets declined in 2017, despite concerns
<Table III-15> Percentage shares in foreign assets1)
about asset price correction following the (As of year-end)
monetary policy normalizations by central (%, %p)
banks in major countries. Reasons for this Change

2015 2016(A) 2017(B)
(B-A)
decline were the improvement of global eco-
1.By Purpose
nomic growth, the abundant global liquidity, Short-term liquidity
tranche 4.5 4.7 3.2 -1.5
and the reduced political risks in Europe. In
Investment tranche
response, the Bank of Korea managed its
Internally managed 80.0 77.3 77.7 0.4
reserve assets so as to maintain their safety
Externally managed 15.5 18.0 19.1 1.1
and liquidity as well as enhancing their prof- 2.By Currency
itability, while still responding flexibly to U.S. dollars 66.6 70.3 68.1 -2.2
changes in global financial conditions. Others 33.4 29.7 31.9 2.2
With regard to the tranches, the Bank 3.By Asset class
responded to the growth in its assets by Deposits 5.9 6.5 6.8 0.3
Securities
increasing the size of the investment tranche,
Government bonds 35.7 36.9 37.5 0.6
most notably through a continuous expan-
Agency bonds 22.7 21.0 19.2 -1.8
sion of the externally managed investment Corporate bonds 16.4 14.8 14.7 -0.1
tranche. As for the currency composition, ABS 13.1 13.1 13.2 0.1
the expectations of a weak dollar owing to Equity 6.3 7.7 8.6 0.9
narrowing monetary policy divergence Total 100.0 100.0 100.0 -
between the U.S. Fed and central banks of Note: 1) This table is a break-down of the “foreign exchange” item
in <Table III-14> owned by the Bank of Korea.
other major nations led the Bank to reduce Source: The Bank of Korea.
69
Strengthening of Foreign Reserve Enhancing Management Efficiency

Management System and Risk
Management The Bank of Korea has continued to
improve the efficiency of its foreign
During 2017, the Bank of Korea exam- exchange reserve management by respond-
ined its foreign reserve management system, ing appropriately to changes in domestic
including its management goals and asset and international conditions.
allocation system, while also continuing its In consideration of the growth in the size
efforts to strengthen its risk management. of assets of domestic securities companies,
In connection with its management goals, and their strengthened capacities as brokers
the Bank specified more concretely the goals in line with the increased volumes of trading
of ensuring safety, liquidity and profitability, of foreign currency-denominated bonds, the
establishing pertinent medium- and long- Bank included domestic securities companies
term reserve management directions. It in among its counterparties for the trading of
addition set detailed standards for achieving foreign currency-denominated bonds, and
its management goals, and planed foreign diversified its trading partners thereby.
reserve asset allocation accordingly. In response to the increased occurrence of
The Bank meanwhile also worked to legal actions such as class action lawsuits in
enhance the effectiveness of its risk manage- line with the growing amounts of investment
ment, by improving the management guide- in corporate bonds and stocks, the Bank
lines for financial derivatives used to respond devoted efforts to reinforce its legal functions
more effectively to changes in market condi- by adding legal experts and hiring external
tions and reduce transaction costs. The Bank asset custodians able to provide the related
also supplemented its situation-specific con- services.
tingency plans for foreign reserve asset man- The Bank improved its existing methods
agement, and regularly conducted disaster of collateral management, in consideration
recovery trainings to ensure its capacities for of the strengthening of international collater-
responding swiftly and effectively to domes- al management standards being carried out
tic and overseas emergencies such as disas- to manage the counterparty risks expected
ters, wars and financial crises. in over-the-counter derivatives trading.76)
In addition, the Bank worked to improve
the effectiveness of its reserve information Strengthening of International
system by rearranging the system network, Cooperation in Foreign Reserve
and also bolstered the settlement security of Management Sector
foreign currency asset transactions by
increasing the related security equipment. The Bank of Korea worked to improve its
76) With over-the-counter derivatives, if market prices such as interest rates change after the conclusion of a contract, the evaluation losses and
gains between the counterparties change and the risk of a default by one of the parties (counterparty risk) arises. To reduce this risk it is
becoming common for collateral such as cash or securities to be provided to the counterparty on the basis of the evaluation losses and gains,
and the trend is one of strengthening standards on collateral provision.
70
international cooperation by maintaining effectively to the significant changes in the

close business cooperation with international financial and economic environment since
organizations and central banks overseas, as the global financial crisis. These efforts are
well as by exchanging experiences and infor- also made in order to fulfill Korea’s respon-
mation with them regarding foreign sibilities in line with its elevated internation-
exchange reserve management. al status.
During July, the Bank discussed issues Along with working to boost global policy
including asset allocation and investment coordination within international financial
strategy through the World Bank’s advisory circles, the Bank endeavored to promote
program for foreign exchange reserve man- both Korea’s national interests and the

agement. It also attended a conference orga- international common good by participating
nized jointly by the Bank for International actively in meetings of international organi-
Settlements (BIS) and the Bank of Mexico, zations and consultative bodies such as the
as well as meetings hosted by international G20, the IMF and the BIS. It also played a
organizations including a high-level forum leading role in the activities and discussions
hosted by the World Bank. It participated of Asia-Pacific regional consultative bodies
actively in international discussions on for- including the ASEAN+3, SEACEN and
eign reserve management, through sharing EMEAP.
its management experiences and raising In addition, the Bank worked to deepen
related issues. The Bank meanwhile con- and improve its cooperation with developing
ducted its Central Banking Study Program countries around the region. In particular, it
(CBSP), a training program for staff of cen- expanded its Knowledge Partnership

tral banks in emerging countries, as well as Program, designed to facilitate its provision
providing an individual session for employ- of comprehensive policy advice to central
ees of the central bank of Uzbekistan to banks in developing countries. It shared its
share the experience of the Bank’s reserve diverse policy implementation experiences in
management. Through these efforts, the accordance with the needs of developing
Bank engaged in exchanges of information countries, by broadening the scope of its
with central banks in emerging countries training programs for staff of these countries’
and created opportunities for them to learn central banks and dispatching its own staff
from its investment management experi- to provide consultation to them for both
ences. short and long periods of time.
C. International Global Policy Coordination
Cooperation The Bank of Korea participated actively

in the global discussions of policy coordina-
The Bank of Korea maintained active tion within international organizations and
efforts directed toward bilateral and multilat- consultative bodies, and in so doing actively
eral global cooperation in order to respond expressed Korea’s positions while contribut-
71
ing to the formulation of policy responses to <Table III-16> Main themes of international forums
(2017)
current global financial issues.
Forums Main Themes
In particular, together with the Korean
government the Bank participated in the •Establishment of cooperative
systems for strong, sustainable,
G20 meetings of finance ministers and cen- balanced and inclusive growth in
•G20 Finance Ministers’ the world economy; development
tral bank governors (on three occasions) and
and Central Bank and regulation in the financial
of deputy finance ministers and central bank Governors’ Meetings sector; international taxation, etc.
(March, Baden-Baden / •International Financial Architecture
deputy governors (on four occasions), where April and October, including IMF’s 15th Greneral
it stressed the necessities for active imple- Washington, D.C.) Review of Quotas; Continuing
financial regulatory reform policies
mentation of the financial regulatory reforms in response to cyber security risks,
agreed on by member countries since the etc.
global financial crisis; for assessment of the •IMF and World Bank
•Global economic outlook, global
Group Meetings (April
financial stability, global policy
effects resulting from these reforms; for a and October,
issues, etc.
Washington, D.C.)
strengthening of the global financial safety
•BIS Central Bank
nets; for analysis of the impacts on economic Governors’ Meetings
•Current issues in the global
growth, financial stability and taxation due (Jan., Mar., June, Sep.,
economy and financial markets
Nov., Basel / May,
to digitization and technical innovation; and Tokyo)
for policy coordination. The Bank partic- Source: The Bank of Korea.
ipated actively in addition in discussions of
issues such as the need for devising measures Strengthening of Regional Financial
to resolve issues related to cyber security Cooperation
and to enhance financial sector resilience, as
well as the necessity of policy responses to The Bank of Korea participated actively
facilitate inclusive growth. in the discussions of current issues in finance
The Bank also took active part in the dis- and economics of Asia-Pacific international
cussions during the IMF and World Bank organizations and consultative bodies includ-
meetings (two occasions) and the BIS central ing the ASEAN+3, EMEAP, SEACEN and
bank governors’ meetings (six occasions), the AIIB, as well as in the activities of their
related to improving growth through mone- affiliated working groups, and worked there-
tary, fiscal and structural reforms; to pro- by to strengthen the financial cooperative
moting more broadly-based inclusive growth relationships among regional member coun-
and reduced inequity; to multilateral cooper- tries.
ation to adjust the global current account
imbalances and strengthen the global finan-
cial safety nets; and to providing financing
to low-income countries. Through these
meetings the Bank strove to reflect Korea’s
positions in the process of international
financial policy coordination.
72
<Table III-17> Main themes of Asia-Pacific among countries in the region by participat-
region forums
(2017)
ing actively in scenario-based simulation
drills on joint liquidity provision with the
Forums Main Themes
IMF. The Bank also took a leading role in
•20th ASEAN+3 Finance •Regional financial and economic
Ministers’ and Central developments, measures to addressing pressing current issues on organi-
Bank Governors’ Meeting ensure operational readiness zational management, such as hiring new
(May, Yokohama) and development of CMIM
executives for the ASEAN+3
•Recent economic developments
•16th Trilateral Finance
and policy responses in Korea, Macroeconomic Research Office (AMRO),78)
Ministers’ and Central Bank
China and Japan; strengthening
Governors’ Meeting (May,
of regional financial
established with the aim of supporting
Yokohama)
cooperation, etc. CMIM and monitoring the macroeconomies

•22nd Executives’ Meeting of of member nations. In addition, through
East Asia-Pacific Central •Effects of global factors on
Banks (EMEAP) Governors’ regional monetary policies hosting the governors of the Bank of Japan
Meeting (May, Auckland) and the People’s Bank of China in the
•6th Executives’ Meeting of
East Asia-Pacific Central •Financial stability risks and
annual Tripartite Central Bank Governors’
Banks (EMEAP) Governors/ policy responses; effects of the Meeting,79) the Bank promoted the advance-
Financial Supervisory Basel regulatory reform on the
Organization Heads’ East Asia-Pacific region ment of regional financial cooperation
Meeting (May, Auckland) through enhanced mutual understandings
•9th Tripartite Governors’ and policy assistance among the central
•Recent financial and economic
Meeting among People’s
developments and policy
Bank of China, Bank of banks of Korea, China and Japan.
responses in Korea, China and
Japan and Bank of Korea
(September, Incheon)
Japan Meanwhile, based on its professional pay-
•53rd South East Central ment and settlement expertise the Bank
Banks (SEACEN) Governors’ •Pursuing stability in an worked to fulfill responsibilities befitting

Conference (December, uncertain environment
Bangkok) Korea’s status in consultative bodies of
regional central banks such as EMEAP and
SEACEN. While serving a term as chair of
the Working Group on Payment and
The Bank worked to enhance the cooper- Settlement Systems under EMEAP, the
ation among ASEAN+3 member countries Bank took a leading role in joint research
in the monetary and financial spheres. In related to digital innovation in the payment
particular, related to Chiang Mai Initiative and settlement sector, as well as in the dis-
Multilateralization (CMIM),77) established to cussions on restructuring the WG’s sub-
strengthen members’ capacities for respond- groups. In addition, while serving as a mem-
ing to regional financial crises, the Bank ber of the EXCO Advisory Committee
strove to deepen the financial cooperation (EAC) of SEACEN, the Bank engaged
77) The ASEAN+3 countries established Chiang Mai Initiative Multilateralization in March 2010, as a multilateralization of the previous CMI
aimed at mitigating the shortcomings of the CMI’s network of Bilateral Swap Agreements (BSAs) and further enhancing its capacity for crisis
response, and by doing so they strengthened the framework for financial support in the region.
78) The ASEAN+3 countries established the ASEAN+3 Macroeconomic Research Office in April 2011 based on the CMIM Agreement, and
subsequently strengthened the regional monitoring system by officially converting AMRO into an international organization in February 2016.
79) The central banks of Korea, China and Japan have taken turns hosting this meeting annually since 2009. In 2017 the Bank of Korea hosted
the meeting from September 13 to14, in Songdo, Incheon.
73
actively in the overall decision-making con- <Table III-18> BOK-Knowledge Partnership Program
(2017)
cerning management of the SEACEN
Centre. Country Main Topic
Measures to modernize payment and
Lao P.D.R.
settlement system
Expanding Channels for Sharing Policy Measures to develop indicators for
Experiences with Developing Countries Vietnam
monitoring foreign exchange rates and
foreign currency liquidity, and to construct
a foreign exchange information system
The Bank of Korea supported friendly Cambodia
Empirical analysis of correlation between
foreign exchange rates and inflation
cooperation among central banks through
Establishment of crisis management system
the sharing of its policy experiences and in Mongolia
Mongolia
know-how related to central bank operations -Focusing on foreign exchange markets and
foreign exchange management systems
with its counterparts in developing countries. Development of macroeconomic model for
Nepal
It at the same time also helped to lay foun- economic forecasting
dations enabling Korean financial institu- Source: The Bank of Korea.
tions and companies to establish local pres-

ences in these countries.
First of all, the Bank expanded the scope With regard to the program’s manage-
of the activities of its Knowledge Partnership ment, in order to enhance the effectiveness
Program (KPP),80) and enhanced the quality of its policy advice provision the Bank
of its methods of program management. sought out and involved private research
The Bank of Korea continued to provide institutes with wide experiences in carrying
assistance to its 2016 KPP partner countries, out international cooperation projects. It
Laos, Vietnam and Cambodia, to thereby established a foundation to ensure stable
form close and friendly ties with the central management of the program by updating
banks of these countries. It in addition the Management Rules of the BOK-
signed an MOU on exchange and coopera- Knowledge Partnership Program and the
tion with the Bank of the Lao P.D.R., to detailed program regulations and proce-
strengthen the mutually cooperative relation- dures.
ship with it. The Bank also expanded its The Bank meanwhile strengthened its pro-
technical assistance provided to developing vision of direct technical consultation to
countries in the region by adding Mongolia developing countries around the region,
and Nepal to its list of KPP partner coun- through short- and long-term dispatches of
tries. Bank experts in the internal auditing and
payment and settlement sectors to the cen-
tral banks of Mongolia, Nepal and
Cambodia.
80) The BOK-KPP is a policy advisory and technical support program that assists central banks in developing countries by sharing the Bank’s
knowledge of and policy experiences in carrying out central banking tasks, together with disseminating Korea’s experiences in developing its
financial system and infrastructures.
74
The Bank also conducted five Central to International Financial Institutions.” In

Banking Study Programs (CBSPs) encom- consequence its subscriptions and contribu-
passing monetary policy, financial stability, tions to international financial institutions
foreign exchange reserve management, eco- totaled 16.124 billion dollars as of the end of
nomic statistics and payment and settlement, 2017. The reasons behind this increase in
for 49 staff of eight central banks in develop- subscriptions and contributions included a
ing countries. It also provided short-term subscription to participate in the
study programs for 211 central bank International Development Association
employees from 37 countries who visited the (IDA)’s 17th Replenishment, and a subscrip-
Bank. tion related to foundation of the Asian

Infrastructure Investment Bank (AIIB).
<Table III-19> Central Banking Study Program
In the meantime, as of year-end 2017 the
(2017)
Bank’s total loans to the IMF amounted to
Numbers of
Issues and Dates participants 418.56 million SDRs. These loans included
1 CBSP
st
(Foreign Reserve and External Debt

7 participants, 396.9 million SDRs in lending through the
4 countries
Management, Mar. 7~10) New Arrangements to Borrow (NAB), and
2nd CBSP 11 participants,
(Monetary Policy, Apr. 18~21) 5 countries
loans of 21.66 million SDRs through the
3rd CBSP 10 participants, borrowing agreement of the Poverty
(Economic Statistics, Jun. 20~23) 6 countries Reduction and Growth Trust (PRGT).81)
4th CBSP 12 participants,
(Financial Stability, Oct. 24~27) 5 countries While the loans through the PRGT borrow-
5th CBSP 9 participants, ing agreement had increased by 11.66 mil-
(Payment and Settlement, Nov. 14~17) 4 countries
lion SDRs compared to the previous year,

Note: Issues and dates in parentheses. the total loan volume was 176.99 million
SDRs lower in line with the IMF’s repay-
ment of 188.65 million SDRs of the lending
Expanding Subscriptions and through the NAB.
Contributions to International Financial
Institutions
During 2017 the Bank of Korea paid a

total of 381.87 million dollars (358.82 mil-
lion dollars in subscriptions and 23.05 mil-
lion dollars in contributions) at the govern-
ment’s request, for subscriptions and contri-
butions to international financial institutions
and consultative bodies in accordance with
the “Act on the Measures for the Admission
81) This is an agreement between the IMF and individual countries designed to arrange concessional financing for Low Income Countries (LICs).
Korea signed this agreement in 2011, and made its first loan to this fund in 2013.
75
<Table III-20> Total subscriptions and contributions

to international financial institutions
(As of year-end)
(million USD)
Change
2016 (A) 2017 (B) (B-A)
Subscriptions 14,832 15,191 359
IMF 11,861 11,861 0
IBRD 263 263 0
IDA 1,551 1,693 142
ADB 293 293 0
AfDB . AfDF 403 439 36
AIIB 299 449 150
Other 162 193 31
Contributions 910 933 23
IMF 72 72 0
IBRD 34 34 0
ADB . ADF 582 605 23
IDB . MIF 161 161 0
IIC 40 40 0
Other 21 21 0
Total 15,742 16,124 382
<Table III-21> Loans to IMF

(As of year-end)
(million SDR)
2016 In 2017 2017 Change

(A) Loan(B) Repayment(C) (D=A+B-C) (D-A)
NAB 586 0 189 397 -189
PRGT 10 12 0 22 12
Total 596 12 189 419 -177
76
7. Research and Statistical lyzing the characteristics of global economic

Compilation growth and evaluating key overseas risk fac-
tors.82) In particular, it examined the sustain-
ability of the present global growth by
A. Research Activities reviewing the trends of global trade and
analyzing both factors favorable to future
The Bank of Korea carries out extensive improvements in and those that could pose
research on diverse aspects of finance and future obstacles to growth. It also conducted
the economy in order to support more effi- in-depth analyses of the effects on South
cient operation of its monetary and credit Korea of structural changes in the Chinese

policies. These research efforts range from economy, and of global protectionism.
the analysis and forecasting of domestic and From the domestic perspective, the Bank
international economic trends, to studies of performed a new estimation of the potential
a wide range of topics including currency, growth rate for the Korean economy and
finance, growth, inflation, employment and analyzed the factors that could cause its
the global economy. The Bank publishes its growth potential to fall, based on a compre-
findings through various reports and papers. hensive consideration of the changes in
domestic and international conditions.83) The
Bank sought policy measures to ensure sus-
(1) Head Office Research Activities tainable growth, through a study of structur-
al factors constraining growth such as the
Analyzing Key Pending Issues in the buildup in household debt and the imbal-
7. Research and Statistical Compilation

Korean Economy ances between sectors. With regard to
household debt, the Bank looked into the
For the first time since the global econom- characteristics of the debts held by different
ic crisis, the global economy saw simultane- generations including the elderly, the young
ous accelerations in growth in both and the middle-aged, and sought to derive
advanced countries including the U.S., and policy implications through conducting the
emerging nations such as India and the related soundness assessments. Concerning
ASEAN member states during 2017. the sectoral imbalances, the Bank analyzed
However, the rise of protectionism and the the causes underlying the gaps in productivi-
normalizations of monetary policy by the ty between the leading and lagging compa-
U.S. Federal Reserve and in other major nies in the economy, and sought policy mea-
counties contributed to uncertainties that sures to ease these imbalances in a bid to
dampened the global economic recovery. improve Korea’s economic dynamism.
Taking such circumstances into account the The Bank also analyzed the recent labor
Bank focused its research activities on ana- market conditions from a novel perspective
82) “The Characteristics and Evaluation of Recent Trends in Global Economic Growth” (October 2017), “The Monitoring of 10 Global
Economic Issues for 2017” (July 2017).
83) “Estimation of the Potential Growth Rate of the Korean Economy” (July 2017).
77
by producing a new labor demand and sup- the underlying trend of the GDP growth
ply index and calculating the labor supply- rate on a monthly basis in real-time. It also
adjusted unemployment rate. It in addition constructed a short-term forecasting system,
closely analyzed the effects on employment combining a machine-learning model with
and growth in the labor market of the mini- the MIDAS mixed-frequency model, which
mum wage hikes, a new policy focus of the enables it to provide improved economic
Korean government.84) Notably, with regard forecasts. The Bank continued to publish its
to the expansion in facilities investment that Economic Outlook Report on a quarterly
drove the recovery of the Korean economy basis, in a part of its efforts to share its fore-
during 2017, the Bank examined the future casts with economic participants in the pri-
sustainability of this recovery by looking into vate sector, the government and academia.
the background behind and the outlook for In terms of medium- to long-term
the expansion in IT sector investment. It research, the Bank selected the low birth
also endeavored to find further policy direc- rate and population aging issues facing the
tions based on in-depth analyses of other Korean economy as key topics on which to
major current issues such as the changes in concentrate efforts. Immediately after the
Korea’s trading conditions vis-à-vis major completion of each research project the
countries, the new government’s policies, Bank published the results in its BOK
and the Fourth Industrial Revolution. Working Papers. It also published a research
With regard to prices, the Bank worked to series entitled The Implications of the
promote the effective operation of its infla- Population Structure Aging, and Policy
tion targeting regime by assessing and pre- Tasks, a compilation of 15 research papers.
dicting recent inflation conditions as well as This was distributed to the government, the
analyzing the characteristics of the formation National Assembly, research centers and
of inflation expectations. It also conducted other institutions concerned for their refer-
research on other timely issues, by for exam- ence in formulating related policies. On top
ple analyzing the effects of the minimum of this, the Bank released extensive in-depth
wage increases on domestic prices and eval- research results on a wide range of issues
uating the possibility of a rise in the cost of such as the impact of the volatile global oil
living. prices on inflation expectations, the correla-
The Bank in the meantime also continued tion between interest rates and the prof-
its efforts to develop and expand its econom- itability of banks, and the effects of house-
ic analysis models to ensure improved accu- hold debt on economic growth.
racy of its economic forecasts and to better
tailor them to the changing environment. Expanding Global Research Network and
The Bank developed a proprietary business Strengthening Exchanges
conditions index, BOK-COIN, which uses
monthly real and financial variables to assess In order to increase both its international
84) “The Labor Market in Terms of the Labor Demand and Supply Index” (November 2017).
78
cooperation and its own internal research pants presented papers on the challenges
capabilities, the Bank of Korea also devoted threatening sustainable growth in Asia, and
extensive efforts to helping expand the glob- on desirable macroeconomic trade and
al research network overall. investment policies to counter these threats,
Most notably, the Bank hosted the Bank after which they engaged in energetic
of Korea International Conference 2017 at debates on them.86) In early November the
the beginning of June, on the theme “Global Bank held an international conference on
Economic and Financial Challenges: The the “Changing Inflation Dynamics,” togeth-
Decade Ahead.” At this conference, er with Seoul National University’s Institute
renowned scholars85) from both academic for Research in Finance and Economics.

institutions and international organizations The changes in the inflation dynamics in
participated in thesis presentations and poli- light of differences in pricing by sector, the
cy-related general discussions. In-depth dis- role of inflation expectations, and the effects
cussions took place on issues facing the glob- of inflation expectations on income distribu-
al economy such as population aging, inclu- tion were discussed, and the policy implica-
sive growth and employment, restructuring tions of these matters were sought.87) In early
and macroeconomic policies, and sustainable December the BOK Economic Research
growth, as well as on measures for respond- Institute co-hosted a joint research workshop
ing to overcome the related challenges. A with the Bank of Japan, at which it provided
special session was in addition held on the opportunities for participants to present
theme of “Monetary Policy and Financial research papers and take part in discussions
Stability,” jointly with the Federal Reserve on a variety of topics.

Bank of New York, in which theses were
presented and then discussed.
The Bank hosted a conference in early
September on “Prospects and Challenges for
Sustained Growth in Asia,” jointly with the
Ministry of Strategy and Finance, the
International Monetary Fund (IMF), and the
Peterson Institute for International
Economics (PIIE). At this conference partici-
85) Participants included New York University Professor Thomas J. Sargent and President and Chief Executive Officer of the Federal Reserve
Bank of San Francisco John C. Williams, each of whom delivered keynote speeches. The conference was attended by leading scholars in
related areas including University of Chicago Professor Steven Davis, University of Southern California Professor Nir Jaimovich, Princeton
University Professor Mikhail Golosov, University College London Professor Eric French, and University of Rochester Professor Chang Yong-
sung.
86) Christine Lagarde, Managing Director of the IMF, and Ko Hyoung-kwon, first Vice Minister of Strategy and Finance, delivered the
welcoming addresses at the conference. It was attended by key figures from Korea and abroad including the President of the Peterson
Institute for International Economics, Adam Posen, IMF Chief Economist Maurice Obstfeld, the Director of the IMF Asia-Pacific Bureau Lee
Chang-yong, Bank of Japan Deputy Governor Hiroshi Nakaso, and Professor Joel Mokyr of Northwestern University.
87) Senior Deputy Governor of the Bank of Korea Yoon Myun-shik delivered the opening remarks, and Vice President of Seoul National
University Park Chan-wook gave the congratulatory address. Princeton University Professor Nobuhiro Kiyotaki made the keynote speech, and
prominent domestic and overseas figures such as University of Western Ontario Professor Stephen D. Williamson, ECB Deputy Head of
Division Thomas Westermann, and Seoul National University Professor Kim So-young took part in the thesis presentations and discussions.
79
<Figure III- 15> 2017 BOK International Conference

(June 1~2, 2017, Seoul)
The Bank also conducted studies in active Papers in Economics (RePEc) and the BIS’s
partnership with international organizations Central Bank Research Hub, with the aim
including the IMF and the BIS, and domes- of heightening its status in the area of
tic and overseas universities, on themes such research.
as trade with China, the financial structures
of banks, and the mechanisms of monetary Boosting Internal Joint Research Activities
policy transmission. Such joint research
activities have led to a steady strengthening In an effort to carry out its research activi-
of the Bank’s research capacities related to ties more systematically and efficiently, and
pressing economic issues at home and to promote the pursuit of research on a
abroad, as well as its global research net- bank-wide level, the Bank of Korea encour-
work. aged collaborative research involving differ-
The Bank shared its research data with ent divisions within the organization. To this
members of academia and foreign central end it convened four research committee
banks, and registered its BOK Working meetings88) during the year for the overall
Papers and Economic Analyses with the coordination of research activities. Key
Social Science Research Network (SSRN), research themes were identified, and the
the economics research database Research progress was monitored of ongoing domestic
88) The BOK’s Senior Deputy Governor and the Director General of the BOK Economic Research Institute serve as the committee’s Chair and
Vice Chair, respectively, and the operating committee members comprise the heads of the ten major departments.
80
and overseas joint research activities along and credit policies. The regional branches
with research activities involving different have also strengthened its monitoring of
divisions of the Bank. The Bank also worked major industries which include major manu-
to enhance the quality standards for its facturing industries such as IT and automo-
research, by for example dividing up its biles, as well as service industries that are
research areas based on more specified top- closely linked to the national economy, and
ics, and inviting specialists from the relevant by including the monitoring results in its
divisions as participants. Field Report section within the Regional
Economic Report.
(2) Research Activities by Regional The regional branches compile a range of

Branches survey statistics such as the Business Survey
Index (BSI), the Consumer Survey Index
The functions of the Bank of Korea’s (CSI), data on loans and deposits of financial
regional branches include the monitoring of institutions, and financial statements of cor-
financial and economic conditions, the com- porations for each region. These are all
pilation of diverse statistics, and the analysis essential for understanding the states of
of major issues related to the regional regional economies and for policy-making by
economies. All of this is necessary to the their regional governments.
Head Office in the establishment of its mon-
etary and credit policies and in pursuing Analyzing Major Issues Associated with
financial stability, in addition to helping the Regional Economies
regional economies to achieve steady

growth. The regional branches also make The Bank’s regional branches examine the
efforts to promote cooperation in research main vulnerabilities hampering sustainable
with their respective communities by hosting and stable economic growth in their local
seminars and forums on major issues associ- economies. Following in-depth research on
ated with regional economies. pressing regional economic issues, they sug-
gest pertinent policy alternatives.
Monitoring of Regional Economies In 2017, the regional branches provided
their respective communities with reports on
The Bank’s regional branches conduct in- risk factors facing their regional economies
depth monitoring of corporations and relat- such as population aging and household
ed institutions in their regions. They partic- debt, as well as with the results of their in-
ipate in publishing the quarterly Regional depth research on changes in the structures
Economic Report, which contains the results of local industries and employment, under-
of this monitoring and related analyses to taken from a long-term perspective.89)
provide the Head Office with relevant infor- The regional branches were also active in
mation for implementation of its monetary conducting joint research projects with
89) In 2017, the Bank’s regional branches conducted 68 own research projects.
81
external experts in response to diverse local aging, as well as for identifying and fostering
research demands,90) selections of which were new growth engine industries. Through
included in its Collection of Papers from the these seminars they attempted to contribute
Regional Branches of the Bank of Korea. to devising strategies and policies for secur-
Papers not only meeting the needs of the ing sustainable growth of their regional
local communities concerned, but also hav- economies. As part of the operations of the
ing significance for the national economy as Select Area Research Program,92) regional
a whole, are selected for each edition of this branches held seminars on the regional
compilation. The 2017 volume (Vol. 7) con- economies of Andong and Gumi (Daegu-
tains papers such as “Analysis and Policy Gyeongbuk branch), Hadang (Mokpo
Implications of Trends in Job Creation and branch), Wonju (Gangwon branch) and
Destruction in Daegu and North Songdo (Incheon branch), at which they
Gyeongsang Province,” “Population Aging suggested measures for economic stimulation
and Regional Growth in Gwangju and customized to the regions concerned.
South Jeolla Province,” and “The The regional branches also hosted numer-
Determinants of and Countermeasures in ous Regional Economy Forums,93) at which
Response to Youth Unemployment in South participants discussed current issues and pol-
Gyeongsang Province.” icy tasks for regional economic revitalization
especially focused on local SMEs, urban
Strengthening Research Exchanges with regeneration projects and new industries.
Regional Communities These forums served as venues for sharing
knowledge and information on related top-
The Bank of Korea’s regional branches ics, and for increasing communication with
hosted a number of seminars and forums, local residents.
jointly with pertinent institutions, universities
and local governments, on topics related to (3) Research Activities of Overseas
growth strategies for the regional economies Representative Offices
and strengthening the competitiveness of
their key local industries. The Bank of Korea’s overseas representa-
In 2017, the regional branches were active tive offices endeavored to analyze and con-
in hosting seminars on their regional duct research on the economies in their
economies91) for improving regional econom- respective jurisdictions, and to provide the
ic competitiveness in response to changing Head Office with timely information gath-
economic and social conditions such as the ered through exchanges with the host coun-
Fourth Industrial Revolution and population tries’ central banks, international organiza-
90) In 2017, the regional branches carried out 60 joint research projects with external experts.
91) In 2017, the regional branches held 31 seminars on regional economies.
92) This program targets areas within the regional branches’ jurisdictions meriting special attention as administrative and economic hubs or
having specific needs for research and monitoring. As of the end of 2017, 13 regional branches were operating the Select Area Research
Program, targeting 16 selected areas.
93) In 2017, the regional branches hosted 30 Regional Economy Forums.
82
tions, and finance and economics experts. records essential economic metrics frequently
They also worked to identify current trends used for national policy formulation and
in policy and research by expanding their analysis, including the international invest-
local networks through, for example, hosting ment position (IIP), producer prices, export
of seminars94) with other central banks and and import prices, financial statement analy-
experts on international financial markets. sis, the business survey index (BSI), and the
They also held workshops95) on major eco- consumer survey index (CSI). During 2017
nomic issues in the U.S. and Europe and the Bank also devoted efforts to developing
their effects on the global economy, as a and expanding statistics useful for economic
means of enhancing their understandings of forecasting and analysis, by for example

global economic issues and strengthening establishing a Big Data Statistics Research
their capacities to lead discussions in Section in August to study measures for uti-
exchanges with foreign counterparts. lization of big data as basic data in compila-
tion of the official statistics.
B. Compilation of Statistics
Development and Expansion of Statistics
As a key agency involved in compiling the
national statistics, the Bank of Korea gener- Ever since the Bank of Korea Act stipulat-
ates traditional central bank statistics on ed the additional duty of the Bank of pursu-
money and finance such as the monetary ing financial stability, the need for micro-
and liquidity aggregates, interest rates on analysis related to financial stability has
deposits and loans, and household credit. It grown. In response the Bank has recently

also compiles five main national accounts- pursued development of a household debt
GDP, the Input-Output (I-O) Tables, the database analysis system, in order to
National Balance Sheet, the Flow of Funds, increase the utilization and analysis conve-
and the Balance of Payments. In addition, it nience of the household debt database estab-
<Figure III- 16> Relationship between System of National Accounts and Five Main National Accounts
National Accounts
Production Income Capital Financial External

Account Account Account Account Transactions Balance Sheet
Account
I-O GDP Flow of funds BOP National B/S
IIP
94) The New York office held a seminar jointly with the Federal Reserve Bank of New York in June.
95) The London office held a workshop in November, in which the Bank’s overseas representative offices in Europe and the U.S participated.
83
lished in 2015. It also laid the groundwork overseas institutions.

for developing the timely statistics required Meanwhile, the Bank also sought to reor-
for its operation of monetary policy and eco- ganize its statistics sampling so as to enhance
nomic forecasting, by tentatively compiling reflection of the pertinent realities in the
quarterly production and income accounts Business Survey Index, one of the statistical
by institutional sector, as well as statistics on metrics that it compiles, and as part of this
medium-sized companies. The Bank pub- effort conducted a pilot survey using a
lished a report on the current situation of restructured sample.
measurement of the digital and sharing
economies for the GDP statistics, which can Strengthening Domestic and International
be used to improve its GDP statistics in the Statistical Cooperation
future. To utilize big data in compiling its
economic statistics, the Bank devoted various The Bank of Korea hosted an internation-
efforts to the setting of business directions, al conference in April, jointly with the
carried out joint research projects with International Association for Research in
external experts, and conducted case studies Income and Wealth (IARIW), on the theme
of the applications of big data by major of “Beyond GDP: Past Experiences and
<Figure III- 17> 2017 IARIW-BOK Special Conference

(April 26~28, 2017, Seoul)
84
<Figure III- 18> 2017 Joint forum by the Korean Statistical Society - the Bank of Korea
(September 22, 2017, Seoul)


Future Challenges in the Measurement of other experts discussed statistical techniques
Economic Well-Being.” Featuring experts for the utilization of big data, and presented
from the OECD, the IMF and other statis- examples of big data use in the economic
tics-related international institutions, togeth- statistics sector.
er with professors from prestigious universi- In addition, the Bank participated in
ties around the world, this conference dis- international meetings and working-level
cussed topics such as the relationship workshops hosted by the UN, the OECD,
between the national accounts and well- the IMF and major central banks, at which
being, and methods of measuring well-being. measures for the stable establishment and
The Bank also held a joint forum with the implementation of new international stan-
Korean Statistical Society, on the topic of dards for statistics, including the implemen-
“Big Data and Economic Statistics.” During tation of DGI96)-2, were discussed, while
this conference domestic academics and research topics on big data were identified
96) The Data Gap Initiative, launched at the G20 summit in London in 2009, refers to an international statistics development and improvement
project featuring participation by major international organizations including the BIS and the ECB as well as the G20 member countries,
under the leadership of the IMF and the FSB. The first phase of the Data Gap Initiative (DGI-1), on CDS, structuralization and non-bank
financial institutions’ cross-border exposures, was carried out from 2010 to 2015. The second phase (DGI-2), on derivative products, overseas
direct investments and the sharing of statistics, has been in progress since 2016.
85
and relevant networks expanded. The Bank

also worked to forge stronger cooperative
relationships with domestic statistics-related
institutions by hosting the Statistics
Cooperation Meeting together with Statistics
Korea.
Improving Economic Statistical Services
During the year the Bank of Korea pro-

vided 71 sessions of Lectures on Economic
Statistics Indexes for universities and finan-
cial institutions, through which it has been a
channel for promotion of its economic statis-
tics and the raising of public understanding
of them. The Bank also added more detailed
explanations and data visualizations to its
press releases on key statistics, including
GDP and the balance of payments, to pro-
vide the users of these statistics with
improved access to and understanding of
them.
The Bank in addition updated its list of
statistics compiled by adding the amounts of
currency issued and collected by the Bank’s
branches, as well as cross tabulation of the
intellectual property rights trade balance, to
its Economic Statistics System (ECOS), to
thereby further heighten the users’ conve-
nience.
86
8. Treasury and Securities tax revenues. The Bank also deposits the
Business government’s idle funds and funds from the
issuance of Treasury bonds into its
Government Deposits, which amounted to
A. Treasury Business 1,187 trillion won in 2017.
Most payments of Treasury funds are car-
The Bank of Korea serves as the institu- ried out via real-time electronic transfers
tion tasked with management of the receipt through the Treasury Network. Upon
and disbursement of Treasury funds. When receiving a request by a designated official
taxpayers contribute to the Treasury funds, that it transfer Treasury funds, the Bank dis-

through for example payments of national burses them into the accounts at the finan-
taxes, the Bank holds them as Government cial institutions of the creditors concerned
Deposits, and it disburses payments from on a real-time basis. The Bank also makes
this account based on the government’s payments using the government’s idle funds
needs while conducting accounting for these and funds for redemption of Treasury bonds
transactions in accordance with the govern- from the Government Deposits.
ment accounting system.97) In order to
<Table III-22> Receipts and disbursements of Treasury funds
ensure the effective and accurate processing
(trillion won)
of Treasury funds the Bank of Korea has Change
2015 2016(A) 2017(B)
also established and currently operates the (B-A)
Treasury Network. It in addition fulfills its Total receipts1)

Treasury agencies 347 366 400 34
responsibilities as the banker to the govern-
8. Treasury and Securities Business

Bank of Korea 1,001 1,210 1,187 -23
ment by extending temporary loans to the
Total disbursement1)
government in cases of fiscal shortage. Financial institution
566 583 607 24
account transfer
Bank of Korea account
Receipt and Disbursement of Treasury transfer, others
771 977 959 -18
Funds Note: 1) Includes the government’s idle funds, funds from the
issuance of Treasury bonds and etc.
Receipts of taxes and other government
revenues are processed by the Bank of
Korea, treasury agencies, the Post Office, Treasury Agencies
and other agencies designated for such pur-
poses.98) In 2017 national treasury receipts To enhance taxpayers’ convenience the
via all of these treasury agencies totaled 400 Bank of Korea designates branches of finan-
trillion won, up by 34 trillion won from the cial institutions meeting certain requirements
previous year due mainly to an increase in as treasury agencies to be entrusted with the
97) South Korea operates two accounting systems: cash basis accounting under the National Finance Act, in which revenues and expenses are
recorded based on cash flow, and accrual and double-entry bookkeeping under the National Accounting Act, in which revenues and expenses
are recorded upon the occurrence of economic transactions. The Bank of Korea’s method is cash basis accounting.
98) Korea Financial Telecommunications & Clearings Institute is the only agency designated to receive Treasury funds through credit cards.
87
business of receiving taxes and other govern- Operation of the Treasury Network
ment revenues. As of the end of 2017 the
total number of treasury agencies nationwide Tasks related to Treasury funds are car-
stood at 16,966, lower by 217 than in the ried out through the Treasury Network,
previous year. This decline was due primari- comprised of the Bank of Korea’s computer
ly to a reduction in the number of bank systems, the government’s Digital Budget
branches in line with the expansion of non- and Accounting System (dBrain), and the
face-to-face services. National Treasury computer systems of financial institutions
receipts via treasury agencies totaled 371 and Korea Financial Telecommunications
trillion won during 2017, up by 57 trillion and Clearings Institute (KFTC). By making
won from 2016 owing mainly, in addition to the majority of Treasury fund payments via
the buoyancy in receipts of national taxes, to real-time electronic transfers through the
a decline in treasury receipts through credit Treasury Network, the Bank facilitates the
cards due to the suspension of the credit rapid operation of fiscal funds. By handling
card transaction fee exemption for corporate a massive volume of data, for example on
organizations. the receipt of Treasury funds and refunds of
national taxes, in a batch process at a fixed
<Table III-23> Status of treasury agencies1) time once a day, it also works to enhance
and receipts value
(number, trillion won)
the system’s efficiency.
2016(A) 2017(B) Change(B-A)
Treasury agencies With the aim of heightening the stability
7,200(23) 6,912(23) -288(-)
Type A2) of its Treasury business operations through
Number
of treasury Treasury agencies
agencies Type B3)
9,983( 6) 10,054( 6) 71(-) the Treasury Network, the Bank has con-
Total 17,183(23) 16,966(23) -217(-) ducted simulation-based trainings for organi-
Treasury agencies
297 354 57
zations included in the Treasury Network, to
Type A2)
Receipts examine for example whether Treasury busi-
value Treasury agencies 17 17 0
Type B3) ness operations can be conducted at the
Total 315 371 57 Disaster Recovery Center99) in events of fail-
Treasury agencies Type C4) 47 24 -23 ures of financial institutions’ computer sys-
Notes: 1) Figures in parenthesis are numbers of institutions. tems. In 2017, moreover, the Bank estab-
2) Designated directly by the Bank of Korea; banks and
federations of cooperative. lished a new system to transmit and receive
3) Designated indirectly as agencies by their federations; non-
bank financial companies. data through alternative media in events of
4) Agency dealing with credit card payment, currently Korea
Financial Telecommunications & Clearings Institute only. communications disruption, and conducted
simulation-based training on exchanges of
data through this system.100)
There were a total of 378,000 cases of
receipts and disbursements of Treasury
99) This is a backup computer system that would handle treasury business operations in events of emergencies leading to failures of the main
system.
100) This training will be conducted every year, as is the simulation training on recoveries from disasters.
88
funds through the Treasury Network in <Table III-25> Ceilings on loans to the government
(trillion won)
2017, with a total of 15.5 trillion won in
2016(A) 2017(B) Change(B-A)
monetary value. These were increases of 7.8
Treasury Single Account 30.0 30.0 –
and 3.9 percent respectively over the previ- Public Capital
8.0 8.0 –
ous year, results primarily of a huge increase Management Fund
in the government’s operation of its idle Special Account for

2.0 2.0 –
Grain Management
funds as well as expanded Treasury fund Total 40.0 40.0 –
disbursement. Source: The Bank of Korea.
<Table III-24> Treasury network transactions

In 2017 the Bank provided 1.4 trillion
(Daily average)

(ten thousand number, trillion won) won (average balance basis) in loans to the
2016 2017 Change(%) government, down by 0.1 trillion won com-
Real-time electronic
39.4 41.7 5.9
pared to 2016. On a cumulative basis the
transfers
bank’s loans to the government also fell by
File transfers 310.9 335.8 8.0
3.7 trillion won, from 11.7 trillion to 8.0 tril-
Number (Treasury receipts) 281.5 302.6 7.5
(National tax refunds) 29.4 33.2 12.9 lion won. This was attributable to a slow-
Total 350.3 377.6 7.8 down in government demand for temporary
Real-time electronic
13.2 13.6 2.9
loans in line with the continued trend of fis-
transfers
cal account surplus thanks mainly to the
File transfers 1.7 1.9 11.5
Value
(Treasury receipts) 1.5 1.6 10.9
increased national tax revenues.
(National tax refunds) 0.2 0.3 15.4
<Table III-26> Loans to the government
Total 15.0 15.5 3.9

(trillion won)
Source: The Bank of Korea. Change
2014 2015 2016(A) 2017(B)
(B-A)
Average
Ceilings on Temporary Loans to the balance
3.1 3.2 1.5 1.4 -0.1
Government Total 45.9 66.0 11.7 8.0 -3.7

The Bank of Korea sets and manages a
ceiling on its credit to the government,
based upon resolutions of the Monetary B. Securities Business
Policy Board. The ceiling for 2017 was set
at 40 trillion won, the same amount as dur- To facilitate the effective operation of its
ing the previous year. monetary and credit policies, the Bank of
Korea issues Monetary Stabilization Bonds
and buys, sells and lends government and
public bonds. The Bank is also entrusted by
the government with the authority to issue,
redeem and register Treasury bonds and
bills, and engages as well in a wide range of
securities services including the securities
89
custody services it provides for foreign cen- the issuance yields on its Monetary
tral banks. Stabilization Bonds, to enhance consistency
During 2017 a total amount of 100.7920 between the issuance and the circulation
trillion won in Treasury bonds101) were markets.
issued, through 233 competitive auctions, With regard to Treasury bills,103) 28-day
while a total of 70.9850 trillion won were and 63-day bills through competitive bid-
redeemed. In terms of their maturities, the dings on two and six occasions respectively,
Bank issued 20.0300 trillion, 23.8500 trillion in a total value of 7.94 trillion won, the
and 26.5800 trillion won respectively of entire amount of which was redeemed by
Treasury bonds with 3-year, 5-year and 10- the end of the year.
year maturities. Together they accounted for
69.9 percent of its total issuance. <Table III-28> Issuance and Redemption of Treasury Bills
(billion won)
2014 2015 2016 2017
<Table III-27> Issuance and Redemption of Treasury Bonds
Issuance 38,000 37,510 20,940 7,940
(billion won)
Redemption 38,000 37,510 20,940 7,940
2017
End of End of
Net Source: The Bank of Korea.
2016 Issuance Redemp- issuance 2017
outstanding (A) tion(B) (A-B) outstanding
Treasury bonds 516,908 100,792 70,985 29,807 546,715
3-year 62,080 20,030 31,051 -11,021 51,059 Meanwhile, like many foreign central
5-year 107,993 23,850 22,325 1,525 109,518
banks in major countries,104) the Bank of
10-year1) 200,033 26,580 17,609 8,971 209,004
Korea provides securities custody services to
(Inflation-linked) 10,985 1,992 2,480 -488 10,497
20-year 98,248 10,005 - 10,005 108,253
support investment in Korean bonds for
30-year 47,454 20,108 - 20,108 67,562 example by foreign central banks in the
50-year 1,100 219 - 219 1,319 operation of their foreign exchange reserves.
Note: 1) Includes inflation-linked Treasury Bonds Securities custody services of the Bank
include the safekeeping of securities, settle-
ment of the securities and funds involved in
The Bank also worked meanwhile to securities transactions, receipts of principal
upgrade the securities system in support of and interest, and management of transac-
measures to improve the Treasury bond tions involving investments in Korean bonds
market including the government’s normal- by foreign central banks and other interna-
ization of the market for inflation-linked tional financial organizations.
Treasury bonds.102) It in addition subdivided
101) Treasury bonds are government bonds issued for the purposes of receipts or disbursements of medium- and long-term government funds.
102) The government changed the standard for determining the issuance yields on inflation-linked Treasury bonds–from the breakeven inflation
rates (BEI) reported by Treasury bond experts, to the average BEI on transactions over the five business days prior to the competitive
auctions for 10-year Treasury bonds.
103) Treasury bills are short-term bonds that the government issues to secure financing from the markets and compensate for temporary shortages
caused by seasonal factors throughout the fiscal year.
104) Central banks that provide securities custody services for foreign central banks and international financial institutions include the U.S.
Federal Reserve Bank of New York (FRB NY), the European Central Bank (ECB), the Bank of England (BOE), the Reserve Bank of
Australia (RBA), la Banque de France (BDF), the Deutsche Bundesbank (DBB), the Bank of Canada (BOC), the Bank of Japan (BOJ), the
People’s Bank of China (PBOC), and De Nederlandsche Bank (DNB).
90
<Table III-29> Securities Custody Services of BOK Omnibus Account raised 181.2716 trillion won
during 2017, through issuance of Treasury
Eligible Institution Eligible Securities Main Service
bonds, receipts of principal and interest on
Foreign
Securities Settlement
Government, Korea Treasury
and Payment,
deposits, and deposits made by other funds. Of
Foreign Bond, Treasury
Safekeeping, Cash this, 88.9123 trillion won was paid in redemp-
Central Bank, Bill, Monetary
Account Management,
International Stabilization
Financial Bond
Withholding Income tions of principal and interest on Treasury
Tax, Reporting, and etc
Institution bonds, 80.2127 trillion won was deposited into
Source: The Bank of Korea. the General Account and the Foreign
Exchange Stabilization Fund, and 11.6841 tril-
As of the end of 2017 the Bank had lion won was used for principal and interest

entered into securities custody agreements payments on deposited funds. The Treasury
with four foreign central banks and one Loan Account raised 1.6965 trillion won
international financial institution. And it has through deposits and receipts of principal and
also actively participated in a range of activ- interest payments on loans. Of this amount,
ities carried out under the Official Sector 1.3988 trillion won was used to repay principal
Service Providers Roundtable (OSSP and pay interest on deposited funds, and 9.5
Roundtable),105) a consultative forum of cen- billion won was extended in loans for national
tral banks, to strengthen international coop- projects, etc. The Loan Account raised 256.4
eration. billion won through the collection of re-lend-
ing loans, and transferred 180 billion won of
this to the General Account.
C. Fund Management Business The Fund for Repayment of Public Funds

raised 15.8944 trillion won, partly in trans-
Under the Bank of Korea Act and other fers from deposited funds, which was used to
related legislation the Bank has been entrust- repay principal and interest on Public
ed by the government with the responsibili- Capital Management Fund deposits and for
ties of operating and managing various other purposes.
funds including the Public Capital The Savings Bounty Fund for Encouraging
Management Fund, the Fund for Lump-Sum Savings of Farming and Fishing
Repayment of Public Funds, and the Saving Households raised a total of 83.1 billion won
Bounty Fund for Encouraging Lump-Sum over the year, including 41.5 billion won
Savings of Farming and Fishing Households. from the government and 41.5 billion won
To fulfill its attendant fund management from the Bank, which was used to provide
duties the Bank carries out accounting and savings bounties to farmers and fishermen
related functions such as the collection of subscribed to Lump-Sum Savings of
revenues and payment of disbursements. Farming and Fishing Households.
The Public Capital Management Fund Consequently, 80,024 farming and fishing
105) The OSSP Roundtable is a self-standing consultative forum comprising the Bank for International Settlements (BIS) and central banks from
major countries that provide banking and securities custody services to the global official sector community.
91
households received 565.8 billion won in Meanwhile, on 619 occasions during the
principal and interest payments through year the Bank invested the temporary capital
Lump-Sum Savings of Farming and Fishing surpluses of the Public Capital Management
Households106) over the year, contributing to Fund, the Fund for Repayment of Public
the creation of wealth for this low-income Funds, and the Savings Bounty Fund for
demographic. Encouraging Lump-Sum Savings of Farming
and Fishing Households, arising due to mis-
<Table III-30> Features of BOK’s government
matches between the timings of financial
fund management business
procurement and execution, in short-term
Fund’s name Objective of establishment and major features
financial products with guaranteed stable
Established in 1994 in order to integrate and manage surplus profits.
funds to utilize them for public purposes, including treasury
loans and to efficiently manage the issuance and redemption
of Treasury Bonds. The Fund is comprised of Omnibus
<Table III-31> Fund raising(operation) amount
Account, Treasury Loan Account, and Loan Account.
Omnibus Account raises funds through the issuance of (billion won)
Treasury Bonds, placements from other funds and utilizes 2016(A) 2017(B) Change(B-A)
them for the redemption of principal and interest on
Public Capital Treasury Bonds and for the deposit to other accounts or Public Capital Management Fund
Management funds, including the General Account and the Fund for
Fund Omnibus Account 192,720 181,272 -11,448
Repayment of Public Funds.
Treasury Loan Account manages the lending and collection Treasury Loan Account 2,850 1,697 -1,153
of funds necessary for improving national welfare and Loan Account 408 256 -152
supporting major industries.
Fund for Repayment of Public Funds 11,580 15,894 4,314
Loan account manages the withdrawal and redemption of
Saving Bounty Fund for Lump-Sum
financing loans introduced under public agreements with
international cooperation organizations, foreign Savings of Farming and Fishing 101 83 -18
governments, or foreign corporations. Households

Founded in 2003 in order to facilitate the redemption of
debts incurred, in financial restructuring, by the Korea
Deposit Insurance Corporation and the Korea Asset
Management Corporation.
Fund for The Fund had contributed a total of 49 trillion won to
Repayment of the Fund for Redemption of Deposit Insurance Fund
Public Funds Bonds and the Non-performing Loan Resolution Fund
2003 through 2006 and with this regard it is scheduled to
redeem all of its obligations by 2027 through funds
transferred from the General Account and the surplus in
tax accounts.
Saving Bounty Set up in 1986 in order to pay savings bounty to the

Fund for farmers and fishermen participated in the lump-sum
savings program for farming and fishing households.
Lump-Sum
Savings of The Fund raises funds through the contribution from the
Bank of Korea and the government each year and pays
Farming and
the saving bounty to the lump-sum savings program
Fishing participants at the redemption of principal and interest
Households of the savings.
106) Lump-Sum Savings of Farming and Fishing Households is a savings product offered by the National Agricultural Cooperatives Federation,
the National Federation of Fisheries Cooperatives, and the National Forestry Cooperatives Federation, with 3-year or 5-year maturities
under an annual payment ceiling of 2.4 million won. It is designated for farmers cultivating leased or personally-owned farmland with areas
of one hectare or less, for fishermen owning powered vessels with capacities of five tons or less, and for foresters cultivating leased or
personally-owned forest lands with areas of five hectares or less. Subscriptions to Lump-Sum Savings are limited to one person per
household. The Savings Bounty Fund for Encouraging Lump-Sum Savings of Farming and Fishing Households provides payment of
additional interest at rates ranging from 0.9 to 1.5 percent per year (and 3.0 to 4.8 percent per year for the low-income brackets) as the
savings bounty to savers at maturity.
92
9. External and issued 388 press releases and press ref-

Communication erence materials during 2017, including its
Monthly Statistics Bulletin, BOK Economic
Research, and Global Economy Focus.
The Bank of Korea conducts various com- These publications discuss research and
munication activities designed to enhance analysis on current issues such as population
the public understanding of and trust in it as aging and household debt, as well as major
the central bank of Korea. In particular, the operations of the Bank of Korea including
Bank strove during 2017 to expand its monetary policy and the promotion of finan-
opportunities for communication with the cial stability. The Bank worked steadily in

public by means such as hosting events addition to solicit a wide range of opinions
allowing broad participation including the from the general public and external experts
“Bank of Korea Storytelling Competition” on its major reports including the Monetary
and reinforcing its online communication Policy Report, the Financial Stability
channels. At the same time, the Bank took Report, and the Payment and Settlement
active part in activities to fulfill its social System Report. It did the same with regard
responsibility as the central bank of Korea, to its major policies such as Base Rate
while also operating economic education adjustment, and reflected the opinions
programs to promote the financial literacy of received in its policy-making and operational
the general public. implementation.
In addition to these efforts, the Bank uti-
lized a variety of events that it hosted as
9. External Communications
A. Expansion of Public
opportunities for communication. During
Communication “The Bank of Korea Storytelling
Competition” introduced in 2017, six win-
The Bank of Korea strives to communi- ners were selected from among 196 entries
cate actively with the public utilizing a range that conveyed touching episodes or personal
of communication channels including the experiences related to the Bank in the form
publication and distribution of research of short stories, offering an opportunity to
materials, the holding of various conferences expand the degree of communication
and events, operation of its official home- between Bank of Korea staff and the public.
page and social media accounts, and hosting The annual “Monetary Policy Challenge”107)
the Bank of Korea Money Museum. was also held, to encourage college students
In efforts to keep the public informed of to discuss present economic issues from a
its operations, and provide timely informa- creative perspective and help to enhance
tion on current issues in the monetary econ- their understandings of monetary policy. In
omy, the Bank published 408 periodicals particular, the Bank strove to inspire partici-
107) This competition has been held since 2003 in order to provide college students with a venue for experiencing simulated monetary policy
decision-making. In 2017 a total of 276 college students participated, in 69 teams from 44 universities nationwide.
93
<Figure III-19> Awards of the Bank of Korea Storytelling Competition

(May 11, 2017)
pants and boost students’ monetary policy lit- section provides brief explanations of major
eracy by introducing encouragement awards issues including the interest rate hikes by the
in the final and preparing various events for U.S. Federal Reserve, the economic impacts
the competition. The Bank of Korea Experts of the “Brexit” and the current state of
Workshop was also held, to share the latest household debt, and offers easy access to the
information on local and global economic pertinent research materials.
issues with academia and research institutes
and expand public awareness of the opera- <Table III-32> The number of visitors
of the BOK’s main website
tions and policies of the Bank. (Daily average)
The Bank of Korea strengthened its online (thousand persons)
communications in an effort to address the 2015 2016 2017

Visitors 2,421 2,477 2,786
evolution of the media environment and
maintain extensive sharing of information Source: The Bank of Korea.
and real-time communication. To facilitate

convenient browsing by users of its home- On its official Facebook page the Bank
page, the Bank updated its policy data and hosted quiz events on topics such as “Basic
research materials on a regular basis and Detection of Counterfeit Banknotes” and
provided additional explanations on key “2017 Issuance of National Park
concerns in the monetary economy through Commemorative Coins,” to attract public
a new menu category titled “Issues.” This attention to its operations. It in addition
94
<Figure III-20> Exhibitions on Art Collection and Turkish currency from the Central Bank of Turkey

posted infographic data on major informa- The Bank operates the Bank of Korea
tion through its Facebook page and Twitter Money Museum as a means of helping to
account, and added relevant video clips on enhance the public awareness of currency
its YouTube channel to publicly disseminate and monetary economics through experien-
information on pending Bank operations tial education. The BOK Money Museum
such as the “Coinless Society” program. To hosted 255,000 visitors in 2017. To com-
enhance understanding of its operations the memorate the 60th anniversary of the estab-
Bank also made active use of economic edu- lishment of diplomatic ties between Korea
cation materials, infographic data in key and Turkey it hosted the exhibition “Art
press releases, and a variety of video clips Collection from the Central Bank of Turkey:
including some clips of its press conferences Invisible Language,” and a special exhibition
on the directions of monetary policy. on Turkish currency titled “Turkey, the
Bridge between Europe and Asia.” This
<Table III-33> Social media operated by BOK1)
contributed to promoting bilateral exchanges
You Face Kakao between the two countries and introduced
Twitter Flickr
Tube book story
July, August, August, August, October,
the history and culture of Turkey to Korean
Inception
2013 2014 2014 2014 2014 viewers of the exhibitions. Ahead of the
Contents PyeongChang 2018 Winter Olympics, the
620 887 868 1,233 662
(number)
Bank displayed commemorative banknotes
Note: 1) As of year-end.
95
<Figure III-21> Community service of the Bank of Korea

(December 16, 2017)
issued for past Winter Olympic Games and <Table III-34> The number of visitors of the
other sports in a feature exhibition entitled Bank of Korea Money Museum1)
(thousand persons)
“Commemorative Money Featuring the
2015 2016 2017
Olympic Winter Games.” During the course
Visitors 255 277 255
of 2017, meanwhile, the Bank renovated the
Note: 1) Includes regional branches’ money exhibition hall.
museum’s exhibition facilities including the Source: The Bank of Korea.
Sangpyeongtongbo Gallery.
In efforts to support the art community
the Bank has been collecting artworks ever
since its foundation, and since the launch of
the Bank of Korea Gallery in 2002 these
works have been displayed to the public in a
variety of feature exhibitions. In 2017 the
gallery held a feature exhibition titled
“Autumn 2017,” in which it introduced 22
major works from the Bank’s collection on
the theme of autumn.
96
<Figure III-22> Signing Ceremony of MOU with Seoul National University

(March 7, 2017)

The Bank of Korea also strove to alleviate Beyond these efforts, the Bank’s staff took
public inconvenience through polite and part in activities for contributing to society
prompt responses to questions and com- to help fulfill its social responsibilities as the
plaints related to its operations including its central bank. The first Saturday of every
foreign exchange reviews, currency supply month is designated as “Voluntary Service
and monetary policy. Day,” on which staff from the Bank partic-
ipate in a free lunch program, nursing home
<Table III-35> Complaint handling of the Bank of Korea visits, fundraising to help children in single-
(times)
parent families and senior citizens living
2015 2016 2017
alone, and visits to social welfare facilities.
Acceptance 1,226 1,078 1,263
To secure the safe and systematic preser-
Settlement 1,226 1,078 1,263
vation of recorded cultural assets, and
enhance their availability for use, the Bank
signed an MOU on management in trust of
a collection of 2,423 books in total covering
408 categories, which had been housed since
its foundation with the Kyujanggak Institute
97
of Korean Studies at Seoul National

University. The two parties agreed to pro-
mote efforts for bilateral cooperation in this
regard. According to experts, 69 of the
entrusted old books are rare, and among
these five have been evaluated as valuable
volumes equivalent to cultural assets. To
commemorate the entrustment and herald
the value of this collection as historic materi-
als, the Bank of Korea co-hosted a special
exhibition entitled “Bookshelves of the Bank
of Korea at Kyujanggak.”
98
BOX
III-3 of the Bank's leading role in ensuring financial stability

through such actions as raising the Base Rate and sign-
ing the currency swap agreement with the Bank of
Results of 2017 Opinion Canada. The improvement in the public's assessment is
meanwhile believed to have been influenced by the
Survey on the Bank of Korea active public relations efforts by the Bank such as its
“Bank of Korea Storytelling Competition” and its addi-
tion of the new menu item “Issues” to its homepage.
The Bank of Korea conducts surveys of the level of The Bank will continue striving to improve its external
satisfaction with its performance among the public and communications, by actively utilizing the results of this

external experts, and tries to reflect the results in public opinion poll to forge public trust in financial sta-
improving its external communications. During 2017 the bility and enhance the effectiveness and transparency of
Bank conducted these surveys of over 1,000 members of its monetary and credit policies.
the general public, and of 320 experts from the govern-
ment, the National Assembly, academia, research insti- <Table III-36> Results of Opinion Survey
tutes, the media, financial institutions and business cir- on the Bank of Korea
(points)
cles. Notably, the accuracy of the survey of the public
General Public Experts
was enhanced by doubling the size of the random sam- 2016 2017 Change 2016 2017 Change
ple (from 500 to 1,000) over that conducted in 2016. Total 48.4 59.0 +10.6 62.7 67.9 +5.2
Based on the surveys the Bank was awarded 59.0 of a Business
53.1 60.0 +6.9 62.2 66.3 +4.1
Performance
possible 100 points by the general public and 67.9 by the
Organizational
45.2 48.3 +3.1 55.3 57.8 +2.5
external experts group, for its “Role Fulfillment as the Values
Central Bank (comprehensive assessment),” indicating Source: The Bank of Korea.
higher satisfaction than in the year before.

The scores assessing the Bank’s ”Business
108) 109)
Performance“ and “Organizational Values” were
also improved from the previous year among both
groups surveyed.
The business performance assessment score from the
external experts group had shown a trend of decline
since 2014 (from 66.4 points in 2014 to 64.6 in 2015 and
62.2 in 2016) but surged in 2017 due to remarkable
improvements in the categories of monetary policy, the
foreign exchange market and economic forecasting. This
is presumed to have been a result of the media coverage
108) This is decided from the reviews of the Bank’s performances in its main tasks by sector through calculation of the weighted averages based
on the numbers of evaluators. The main tasks include monetary and credit policy, financial system stability, payment and settlement system
operation, currency issuance and distribution, economic research and statistics, and foreign exchange market stabilization.
109) This is the arithmetic mean of the scores related to the Bank’s organizational values: public interest, neutrality, responsibility, communication
and professionalism.
99
B. Economic and Financial The Bank’s Friday Lectures for university

Education students and the general public were held
on a weekly basis. For the 700th Bank of
The Bank of Korea devoted efforts to Korea Friday Lecture, a current member of
effectively delivering its diverse economic the Monetary Policy Board delivered a spe-
education programs to the general public, as cial lecture on “Understanding the Korean
means of improving their financial literacy Economic Situation.” Some of the lectures
and fostering rational decision-making were co-produced with the Korea National
capacities. Open University, for provision as TV lec-
With regard to its provision of on-site eco- ture programs. (Refer to Box III-4 for
nomic education, the Bank expanded its details).
supplementary economic tutoring sessions at The programs Economy Camps for Youth
universities and in workplaces with a focus and Economic Lectures for Youth (visiting
on professional fields where those receiving lectures and field trips to the Bank of Korea)
the tutoring could utilize the practical are designed to provide teenagers with direct
knowledge and experiences of the Bank’s education on the economy. Indirect educa-
staff. More specifically, a professional lecture tional programs such as the Economics
series entitled “Policy and Market Study” Education Volunteers Program110) and On-
was launched at the graduate business the-job Training Courses for Teachers are
schools of Sogang University and Yonsei provided as well. As part of the efforts to
University. “Special Lectures on promote financial inclusion111) among vulner-
Administrative Economics” and “Under- able social groups, the Bank has also partic-
standing the Economy” were also established ipated actively in economic education activi-
as regular courses at Seoul National ties of the authorities concerned to support
University of Science and Technology. A North Korean refugees in adapting to life in
special offering on the economy, “On a free-market economic system. Through the
Central Banking,” was newly established tar- Bank’s provision of and participation in all
geting students at regional universities to of these programs, a total of 69,303 persons
help enhance local communities’ awareness participated during 2017 in on-site educa-
of the role of the Central Bank. The Bank tional courses provided by the Bank at 1,462
in addition provided economic education events.
programs on recent economic issues to
entrepreneurs by for example hosting lec-
tures and seminars for member companies
of the Korean Chamber of Commerce and
Industry.
110) Introduced in April 2013 as a means of meeting the increasing social demand for economics education, this new program selects qualified
college students to teach courses on the economy at the K-12 level.
111) This refers to all relevant activities aimed at improving financial understanding and access to financial services among all segments of society,
including financially underprivileged groups such as multicultural families and North Korean refugees.
100
<Table III-37> On-site economic education performance <Table III-38> The number of members of the BOK’s
(times) economic education website
(persons)
2015 2016 2017
2015 2016 2017
774 703 747
Youths
(36,315) (34,106) (31,435) 266,854 281,939 293,145
732 812 715 Note: PC and mobile.
General public
(39,613) (45,249) (37,868) Source: The Bank of Korea.
1,506 1,515 1,462
Total
(75,928) (79,355) (69,303)
Note: Figures in parenthesis are persons.

Finally, the Bank has also worked to
Source: The Bank of Korea. strengthen its network related to economics
education. As a part of this endeavor it

The Bank meanwhile endeavored to vital- launched the Bank of Korea Economics
ize its online economics education as well. Education Forum, comprising economics
To keep pace with changes in the media education experts including professors and
environment, the Bank carried out effective researchers from research institutes, to host
operation of its Bank of Korea Economics bi-annual regular forums. The suggestions
Education website and utilized YouTube as forwarded through these forums contributed
a means of assisting all those wishing to sys- significantly to improving the quality of eco-
tematically acquire knowledge on the econo- nomics education, as they were for example
my without temporal or spatial constraints reflected in the Training Program for Teachers.
using PCs or mobile communication devices.
In an effort to facilitate user understanding
of its official homepage and its YouTube
lectures on the economy, the Bank produced
and posted educational content such as its
Friday Lecture videos (46 files) and e-Learning
videos (6 files). In particular, two of these e-
Learning videos, on the themes of financial
plans for new employees and children’s
financial literacy for parents, were produced
in a new format applying reenactments and
computer graphics.
Such efforts to expand its online econom-
ics education through the production and
distribution of this economic education con-
tent led to a year-on-year increase of 11,206
in registered Bank of Korea Economics
Education website members, to a total of
293,145 at the end of 2017.
101
BOX
III-4 To strengthen its online economics education the

Bank produced six economics education units, compris-
ing two comprehensive programs applying reenactments
Diversification of Economic and computer graphics, and four e-learning video clips
featuring combinations of footage and lectures. These
Education Channels were posted in the economics education section of the
Bank of Korea's official homepage and on its YouTube
The Bank of Korea worked during the year to diversify channel. The two comprehensive programs were a docu-
its economics education channels, in a bid to expand and mentary titled "A Useful Financial Plan for New
strengthen its provision of this education. Employees" and a lecture-format installment "Welcome
On June 27 the Bank of Korea signed an MOU with to the World of Economics Education: Economics
Korea National Open University on the development of Education for Kids." The e-learning video program
content for economics education, and in July it then co- included videos on the themes of "Understanding
produced a TV lecture series. A six-session program enti- Behavioral Economics," "Understanding Personal Credit
tled "Course on the Korean Economy with the Bank of and Debt Management," "Retirement Planning and
Korea" aired on the OUN TV channel every Monday from Asset Management," and "Aging and Housing Finance."
October 23 to November 27. It was also posted on the Going forward the Bank plans to continually expand
economics education section of the Bank of Korea's offi- its provision of economics education for the general pub-
cial homepage and its YouTube channel. lic, through for example the production of diverse eco-
<Table III-39> BOK Economics Courses on OUN TV

nomics education content that keeps in step with the
changing media environment.
Dates Topics Instructors
The Korean Economy in Jung, Yung-Taek <Figure III-24> “A Useful Financial Plan for New Employees”
Oct. 23 Statistics Professor, Economic
Education Center
Examination of Foreign and Jang, Min
Oct. 30 Domestic Risks, and Their Deputy Director,
Outlooks Research Dep.
Lee, Hwan-Seok
Nov. 6 Understanding Interest Rates Deputy Director,
Financial Markets Dep.
Understanding Exchange Lee, Seung-Heon
Nov. 13 Rates and the Foreign Deputy Director,
Exchange Markets International Dep.
Understanding Payment Cha, Hyeon-Jin

Nov. 20 and Settlement Deputy Director, Payment
& Settlement Systems Dep.
Korea’s Operation of Lee, Moon-Hyoung
Nov. 27 Its Foreign Professor, Economic
Exchange Reserves Education Center <Figure III-25> “Retirement Planning
Source: The Bank of Korea. and Asset Management”
<Figure III-23> Open Lectures in OUN Studio
Source: Korea National Open University. Source: The Bank of Korea.
102
*Annual(2017)06-부록131~137 2018.6.28 4:42 PM 페이지132 001 Adobe PDF
1. Organization Chart of the Bank of Ko
Planning & Coordination Department (5) Strategic Planning T
Office of Branch Affairs (2) Branch Affairs Plan
Deputy Governor Office of Legal Affairs (2) Financial Legal Aff
Monetary Policy Board Secretariat (1) MPB Administrativ
Press Office Secretariat
Communications Department (4) Communications Pl
Office of Economic Education (2) Education Planning
Deputy Governor Information Technology IT Planning Team,

Department [2](11) Team, Monetary Po
Human Resources & Administration

Human Resources
Department (4)
Office of Property Management (3) Property Administr
Security Office (2) Security & Emergen

Construction Project Management
The Bank of Korea Academy (5) Program Planning &

Senior Deputy Deputy Governor Overall Research &
Governor
Governor Research Department [3](13) Team,Inflation Rese
Study Team),Global
Statistics Planning
Advisor to Economic Statistics Department
Team, Balance of
Governor [2](13)
National Expendit
Financial Stability P
Financial Stability Department [2](8)
Division(Bank Anal
Office of Bank Examination (4) Examination Plann
Monetary Policy Pl
Deputy Governor Monetary Policy Department [1](6)
Division(Monetary
Financial Markets Department [1](5) Financial Market A
Payment & Settlement Payment Systems P

Systems Department [2](8) Systems Stability T
Office of Treasury & Debt Securities (2) Treasury Team, De
Currency Department (6) Issue Policy Team,
International Plannin
Deputy Governor International Department [2](8)
Finance Research T
5 Representative Offices New York Represen
International Affair
International Affairs Department (6)
Knowledge Partner
Reserve Management
Reserve Management Group [3](11)
Portfolio 1 Team, Glob
Economic Research Institute <6> Research Planning

Micro & Institution
Branch(16): Busan, Daegu & Gyeongbuk, Mokpo, Gwangju

Chungnam, Chungbuk, Gangwon, Incheon, Jej
Gangneung, Ulsan, Pohang, Gangnam
Auditor Audit Planning Tea

Audit Department (6)
Statistics Audit Tea
Notes : 1) Busan, Daegu & Gyeongbuk, Gwangju & Jeonnam, Jeonbuk, Daejeon & Chungnam, Gangwon, Incheon, Jeju, Gyeonggi, Gyeongnam, Gangnam 2) Busan, Daegu & Gyeong
4) Busan, Daegu & Gyeongbuk, Gwangju & Jeonnam, Daejeon & Chungnam, Incheon 5) Jeju * [ ] Divisions, ( ) Teams, < > Teams in Economic Research Institute
ank of Korea(As of December 31, 2017)
Strategic Planning Team, Operational Risk Team, External Affairs Team, Organization Team, Budget & Accounting Team
Branch Affairs Planning & Coordination Team, Regional Economies Team
Financial Legal Affairs Team, General Legal Affairs Team
MPB Administrative Support Team
Communications Planning & Coordination Team, Communications Management Team, New Media Team, BOK Money Museum Team
Education Planning & Coordination Team, Education Team
IT Planning Team, IT Security Team, IT Quality Management Team, IT Service Team,Information Systems Division(Accounting Information Systems Team, Management Information Systems
Team, Monetary Policy Information Systems Team, New Accounting Information Systems Development Team), IT Infrastructure Division(Mainframe Systems Team, Server Team, Network Team)
Human Resources Team, Payroll & Welfare Team, Labor Relations Team, Expense Accounting Team
Property Administration Team, Facilities Administration Team, Procurement Service Team
Security & Emergency Planning Team, Guard Team
Program Planning & Coordination Team, Global Program Team, Program Design & Management Team, Adminstration & Support Team, Faculty Team
Overall Research & Forecasting Team, Economic Activities Analysis Team,Macroeconomic & Fiscal Research Team, International Trade Research Team,Industry & Labor Research
Team,Inflation Research Division(Inflation Monitoring & Forecasting Team, Inflation Analysis Team), Macroeconomic Modeling Division(Model Forecasting Team, Macroeconomic Model
Study Team),Global Economy Research Division(Global Economy analysis Team, U.S. & Europe Economies Team, Asia-Pacific Economies Team, China Economies Team)
Statistics Planning Team, Economic Survey Team, Statistics Information Team, Monetary & Financial Statistics Division(Monetary & Financial Statistics Team, Flow of Funds
Team, Balance of Payments Team, International Investment Position Team, Corporate Statistics Team), National Accounts Division(National Accounts Coordination Team,
National Expenditure Statistics Team, Input-Output Statistics Team, National Balance Sheet Team, Price Statistics Team)
Financial Stability Planning & Coordination Team, Systemic Risk Analysis Team, Financial Stability Analysis Team, International Financial Regulation Team,Financial System Analysis
Division(Bank Analysis Team, Non-Bank Analysis Team), Financial Stability Research Division(Financial Stability Research Team, Financial System Research Team)
Examination Planning Team, Commercial Bank Team I, Commercial Bank Team II, Specialized Bank Team
Monetary Policy Planning & Coordination Team, Credit & Reserves Policy Team, Monetary Policy Analysis Team, Monetary Policy Communication Team, Monetary Policy Research
Division(Monetary & Credit Policy Research Team, Policy Framework Research Team)
Financial Market Affairs Team, Market Operations Team, Money Markets Team, Capital Markets Division(Fixed Income Markets Team, Equity Markets & Corporate Finance Team)
Payment Systems Policy Team, Payment Systems Research Team, Payment Systems Management Team, Loans & Settlements Team,Payment Systems Oversight Division(Payment
Systems Stability Team, Payment Systems Risk Management Team), e-Finance Division(e-Finance Planning Team, e-Finance Research Team)
Treasury Team, Debt Securities Team
Issue Policy Team, Issue Planning Team, Cash Services Team, Cash Processing 1 Team, Cash Processing 2 Team, Currency Research Team
International Planning & Coordination Team, Foreign Exchange Accounting Team, Foreign Exchange Market Team, International Finance Division(Capital Flows Analysis Team, International
Finance Research Team), Foreign Exchange Business Division(Foreign Exchange Review Team, Foreign Exchange Investigation Team, Foreign Exchange Information Management Team)
New York Representative Office, Frankfurt Representative Office, Tokyo Representative Office, London Representative Office, Beijing Representative Office
International Affairs Strategy & Coordination Team, International Organization Team, Asia-Pacific Cooperation Team, Financial Cooperation Team, International Relations Team,
Knowledge Partnership Program Team
Reserve Management Planning Team, Risk Management Team, Reserve Investment Division I(Investment Strategy Team, FX Team, External Fund Management Team), Reserve Investment Division II(Global Treasuries
Portfolio 1 Team, Global Treasuries Portfolio 2 Team, Global Credit Portfolio Team, Asset-Backed Securities Portfolio Team), Reserve Management Support Division(Settlement Team, Reserve Information System Team)
Research Planning & Coordination Team, Financial & Monetary Economics Team, International Economics Team, Macroeconomics Team,
Micro & Institutional Economics Team, North Korean Economy Team
uk, Mokpo, Gwangju & Jeonnam, Jeonbuk, Daejeon & General Administration Team1), Regional Economy Research Division(Planning & Financial Research Team, Economic
angwon, Incheon, Jeju, Gyeonggi, Gyeongnam, Research Team)2), Regional Economic Research Team3), Credit, Reserves & Administration Team, Cash Processing
g, Gangnam Team4), Cash Processing Section5)
Audit Planning Team, Planning & Administration Audit Team, Policy Making & Operation Audit Team, Foreign Reserve Management & International Business Audit Team, Research &
Statistics Audit Team, IT Audit Team
san, Daegu & Gyeongbuk, Gwangju & Jeonnam, Daejeon & Chungnam, Gangwon, Jeju, Gyeonggi 3) Mokpo, Jeonbuk, Chungbuk, Gyeongnam, Incheon, Gangneung, Ulsan, Pohang
arch Institute
1. Organization Regional Affairs Team, Global Affairs

Management Team, International Cooperation Team and
Knowledge Partnership Program Team, the
Bank created a new International Financial
Cooperation Team within the International
During 2017 the Bank of Korea under- Affairs Department, and transferred to it
took a partial realignment of its organization functions previously performed by the
in order to respond to changing circum- International Department including the con-
stances such as the increased importance of clusion and management of currency swap
international cooperation, the need to relo- agreements with central banks of major
cate the Currency Department during the countries.
construction of the Bank’s new integrated
annex building, and the resumptions of cur- Maintenance of Currency Issuance and
rency supply and demand functions by some Supply and Demand Functions during
IV. Management Status

of the Bank’s regional branches. Integrated Annex Building Construction
Period
A. Organizational Structure To minimize the currency management

risks during the construction of a new annex
Expansion of International Cooperation building and renovation of its main building
1. Organization Management
Function (scheduled to be carried out between June
2017 and the second half of 2020), the Bank
In January 2017 the Bank of Korea relocated the Currency Department to its
expanded and reorganized its Office of Gangnam Branch Office. Accordingly, the
International Affairs as the new International Bank modified the related organizations to
Affairs Department, in response to the rising put the Currency Department in charge of
significance of international cooperation and tasks previously handled by the Gangnam
the subsequent increase in its workload as Branch such as financial institution currency
the Bank participates more actively in supply and demand and other currency-
international financial institutions and dis- related matters. Through these measures the
cussions with foreign central banks. Through Cash Processing Team at the Gangnam
these efforts the Bank strengthened the Branch was reorganized as Cash Processing
department’s role of establishing and imple- Team II under the Currency Department,
menting international cooperation policy and the currency supply and demand opera-
and its function of coordinating and direct- tions of the Issue, Credit & Reserves Team
ing international cooperation affairs within at the Gangnam Branch were transferred to
the Bank, enabling it to carry out the related the Cash Services Team in the Currency
tasks more systematically and efficiently. Department.
Along with the existing International
Affairs Strategy & Coordination Team,
105
Enhancing Analysis of and Research on the also confirmed in a prior survey of other
Chinese Economy financial institutions.
The Gyeongnam and Jeonbuk branches,
In view of the heightened status of the following a period for preparation, com-
Chinese economy and its growing influence menced their currency supply- and demand-
on the Korean economy, the Bank of Korea related operations from September 2017.
in January 2017 established a Chinese
Economy Team within the Global Economy
Research Division of the Research B. Organization Management
Department, to enhance its research on and Methods
study of the Chinese economy.
Accordingly, the Global Economy Research
Division in the Research Department was Improving IT Sector Management Methods
reorganized to comprise the Global Economy Including Introduction of a CIO
Analysis Team, the U.S. and European
Economies Team, the Asia-Pacific Economies The Bank of Korea introduced a Chief
Team and the Chinese Economy Team. Information Officer (CIO) system in January,
and charged the director of its Information
Resuming Currency Supply- and Demand- Technology Department with the duties of
Related Operations of Certain Regional CIO. Accordingly the Information
Branches Technology Department Director has
become the head of all IT sector operations
To reduce the inconveniences, costs and across the Bank of Korea as a whole.
risks incurred by financial institutions based The Bank meanwhile improved its opera-
in South Gyeongsang and North Jeolla tional methods so as to more organically
Provinces due to their having to transport connect its IT and core business operations,
currency over long distances to the Bank’s by assigning the tasks of operating its main
Busan and Jeonnam (Gwangju) regional IT systems or collaborative support services
branches, the Bank of Korea had its to departments conducting core operations
Gyeongnam (Changwon) and Jeonbuk including the Economic Statistics
(Jeonju) branches resume their currency sup- Department, the Research Department and
ply- and demand-related operations. the Monetary Policy Department.
This reflected the significant demand for
processing of currency supply- and demand- Strengthening of Operational Risk
related transactions through the Bank of Management
Korea in Changwon and Jeonju, where the
Bank’s Gyeongnam and Jeonbuk branches The Bank of Korea manages operational
as well as the head offices of local banks are risks112) in accordance with the Three Lines
located. The significance of this demand was of Defense (3LoD) model. Each department
112) Operational risks refer to risks that might hinder the achievement of an organization’s goals, cause financial losses or damage its reputation
as a result of factors such as inadequate internal processes and systems, failure to properly manage employees, or external events.
106
serves as the first line of defense and desig- during the performance of operational tasks.
nates its deputy director as the “operational It is updated annually to reflect changes in
risk manager,” whose purview is to preemp- domestic and overseas working conditions
tively block risks that can occur in the con- and incidents within and outside the Bank.
duct of operations and prepare to respond In 2017 also the Bank of Korea imple-
swiftly to contingencies. As the second line mented Risk and Control Self-Assessments
of defense the Bank has also established an (RCSAs) based on the Risk Register in all
organization113) responsible for operational departments, so as to identify and prevent
risks and business continuity management various potential risks that could arise in
within the Planning & Coordination their operational processes, while examining
Department, to plan, coordinate and moni- the relevant risks by monitoring and by
tor the related operations across the Bank. analysis of incidents occurring within and
In addition, as the third line of defense, the outside the Bank.
Audit Department conducts internal audits The Bank participated actively in addition

to verify whether risks are being managed in the International Operational Risk
appropriately at the first and second lines of Working Group (IORWG),115) for the sharing
defense. of experiences and outstanding examples
related to operational risks and business con-
<Figure IV- 1> Operational Risk Management Structure
tinuity management among member central
of the Bank of Korea
banks from numerous countries around the
Notification
Governor
world.
Report
Auditor
Executive Officers
Report
Report Report <Figure IV- 2> Flow Chart of the BOK’s Operational
Headquarters
Report Planning & Audit Risk Management
Regional Branches Coordination Dept. Department
Overseas Representative
Offices Support Ins pection Establis hment of Annu al Operational
(2nd line of defense) (3rd line of defense)
(1st line of defense) R is k Management Pl an
Ins pection
Report R is k Regis ter Review R is k Moni tor in g and
Analysi s
R is k Regis ter Update
RCSA
Operational risk management is per-
formed systematically based on the Risk R is k Control Activities (Prevention, Preparation and Response)
Register.114) The Risk Register is a list that Source: The Bank of Korea.
specifies control activities to preemptively
identify and manage the risks that can occur
113) Established in February 2015, the Operational Risk Task Force was expanded and reorganized as the Operational Risk Team in January
2017.
114) Introduced in 2015 to systematically link risk management and auditing tasks, the Risk Register specifies the perceived risks, while also
including contents related to the management organization, an anti-corruption index, evaluations of the possibilities and effects of risks, and
control activities.
115) As of January 2018 the members of the IORWG included central banks from 81 countries (including the ECB) and the BIS. The Bank of
Korea joined the IORWG in December 2011.
107
The Bank of Korea meanwhile frequently nectivity with the operations of the different
supplements its business continuity plans for departments, as well as the priorities in
responding effectively to cyber risks and nat- course establishment and the curriculums. It
ural disasters such as earthquakes, and exam- held a total of seven meetings in 2017,
ines its preparedness and effectiveness in through which members engaged in in-depth
responding through the conduct of simulation- discussions of issues such as detailed plans for
based training. During 2017 the Bank also the designs of the basic and applied job
examined and supplemented its emergency training courses, the structure of organiza-
response system by referring to its experience tional development training, and the training
in responding to the earthquake in Pohang, as credit system, and established thereby a
well as relevant experiences116) of central banks foundation for more effective operation of
in major countries, and conducted scenario- the new educational system.
based task substitution trainings. The Bank of Korea also carried out an
on-site survey of the training system at the
IMF where it examined the current status of
C. Education and Training the training plans and operations of the IMF
Institute for Capacity Development (ICD),
which served as an opportunity to help the
Laying the Groundwork for a New Bank to further improve and develop its
Educational System own new educational system. In particular,
through this survey the Bank derived impli-
Having established the goal of implement- cations related for example to the needs for
ing a new educational system in 2018, the heightening the operational relevance of job
Bank of Korea undertook during 2017 the training, for strengthening leadership train-
basic tasks of planning the operational meth- ing for managers, and for improving aware-
ods and curriculums for the individual train- ness of the training among organization
ing courses of the new system. members, which it reflected in drawing up
To this end the Bank newly established its detailed operational plans for the new
and operated a Curriculum Council, an on- educational system.
site opinion gathering and advisory body, The Bank in addition restructured its
with the aim of increasing the relevance of training database in accord with the imple-
the job training courses and organizational mentation of the new system, and placed the
performance as one goal under the new edu- heads of the departments concerned in
cational system. The Curriculum Council, charge of monitoring and adjusting the
comprising deputy directors from major training plans for their own employees as
departments as its ex officio members, is necessary, to thereby enhance the connec-
responsible for discussing issues when estab- tions and harmony between work duties and
lishing the training courses such as their con- training.
116) Such experiences included those of the Federal Reserve Bank of Dallas in its response to Hurricane Harvey, on August 25, 2017, and the
Bank of Mexico’s response to the earthquake that struck its country on September 19.
108
Developing and Operating Training harassment prevention education in its train-

Programs to Enhance Job Competencies ing programs, through which it contributed
to heightening awareness of gender equality
The Bank of Korea continued to develop among employees and strengthening a digni-
and operate training programs for the pur- fied organizational culture.
poses of enhancing its employees’ expertise
and establishing a sound organizational cul- Support for Global Job Competency and
ture. With regard to its intensive job training Career Development
courses, the Bank made efforts to improve
their effectiveness by establishing the Office With a focus on expanding the global job
Hour and Open Class system, which provides competencies of its employees and their
opportunities for interviews and discussions acquisitions of advanced work performance
with renowned professors from abroad. While skills, the Bank of Korea continued to pro-
diversifying the scope of its job training to vide staff with overseas work training oppor-

encompass theoretical study of the Korean tunities to participate in training programs
economy, the organizational management of of foreign central banks and global institu-
public institutions, and understanding of the tions, through dispatches of employees to
financial system and ‘law and economics’, the this end.
Bank provided the departments concerned To strengthen the life planning and social
with detailed summaries of the lectures and adaptability of prospective retirees after
discussions, which were also posted on its retirement, the Bank expanded and reorga-
BOK Information System (BOIS), as it nized its retirement preparation training sys-
focused efforts on heightening the operational tem, which since November 2017 is now
relevance of its training and sharing intellec- operated in stages beginning from prelimi-
tual assets and institutional memory. nary group training sessions and includes
Additionally, the Bank opened new basic competency development training sessions
academic courses in fields within which and intensive elective courses.
external demand is increasing such as ‘law
and economics’ and the theoretical study of
the North Korean economy, as well as new D. Expanding Employment and
e-learning courses in the field of economet- Enhancing Fairness in
rics where internal demand is high including
Bayesian Statistics, Bayesian Vector
Recruitment
Autoregression (VAR) and Dynamic
Stochastic General Equilibrium (DSGE) The Bank of Korea continued its efforts to
Modeling. secure outstanding talent with expertise and
Meanwhile, the Bank launched internal- job competency as well as basic capabilities
conflict management modules in all grade- including senses of duty as central bank
specific and communication training courses, employees and sociability as members of an
while also implementing substantive sexual organization.
109
During 2017 the Bank of Korea recruited increasing professionalism and openness in
a total of 129 employees, including 70 new its human resources management. In 2017,
junior economists (G5), as the volume of its as in the year before, when hiring new
new hires was thus the largest since the junior economists (G5) it hired one person
1990s. This large-scale recruitment by the with fluency in Chinese through separate
Bank was an active response to the social screening, and when hiring new assistants
expectations for conversion of temporary (C3) it hired 22 candidates with prior profes-
positions to permanent positions, while also sional work experience. It also applied an
taking into account the medium- and long- open recruitment process to fill open posi-
term forecast supply of and demand for tions including that of the Director of the
labor. Reserve Management Group, and to hire
The Bank in addition strengthened its external specialists and economists including
blind hiring process so as to enhance the PhD-level researchers.
fairness in recruitment. Information such as The Bank continued to recruit with an eye
applicants’ alma maters, photos and acade- toward promoting social equity, by for
mic credits was removed from the applica- example hiring talented personnel from the
tion form, to prevent undue prejudice provinces in accord with its Provincial
against applicants and ease their burdens in Talent Employment Target system, as well
filing their applications. as specialized vocational high school gradu-
The Bank also devoted positive efforts to ates through separate screening.
<Figure IV- 3> Newly recruited staff in 2018

(January 4, 2018)
110
<Table IV- 1> Number of new hires per year its efforts to expand its corruption prevention
(persons) program and its integrity-based organization-
2014 2015 2016 2017 al culture, by for example modifying its anti-
Junior 60 70 64 70 corruption infrastructure and strengthening
economist(G5)1)
Assistant(C3) 12 20 30 30
its provision of integrity education.
Security 7 5 7 21 Above all, in connection with the reloca-
Others 7 9 3 8 tion of its Head Office to a temporary work-
Total 86 104 104 129 site, the Bank of Korea carried out systemat-
Male 57 54 50 69 ic examinations of its overall business
Female 29 50 54 60
processes by thoroughly monitoring the
(%) (33.7) (48.1) (51.9) (46.5)
compliance of all related projects with the
Note: 1) Based on recruitment year.
Source: The Bank of Korea. Improper Solicitation and Graft Act and
internal rules at every stage, from contract
The recent trend of increasing female signing to completion.

applicants in the fields of finance and eco- To improve the staff’s awareness of the
nomics has resulted in an increasing propor- Act, the Bank also published and distributed
tion of women among the Bank’s staff. a casebook tailored to its own particular cir-
Female employees accounted for 46.5 per- cumstances, while developing and imple-
cent of new recruits in 2017, up sharply menting a system for consultation and report
from the figure of 33.7 percent in 2014. The related to the Improper Solicitation and
number of female managers at the Bank has Graft Act, for the convenience of staff in
also risen significantly, and the proportion of various cases involving consultations or
female managers above G5 grade,117) which reports.
stood at 15.2 percent as of year-end 2017, is The Bank in addition encouraged employ-
rising every year. ees to conduct their own autonomous activi-
ties to promote integrity and anti-corruption,
through the development of anti-corruption
E. Expanding Corruption
policies in the individual departments, oper-
Prevention and Culture of ation of an integrity safeguard system, and
Integrity contests to solicit ideas and essays on integri-
ty and anti-corruption.
To secure a high level of integrity and Alongside its own efforts, the Bank worked
credibility commensurate with the public’s actively to reflect suggestions from external
expectations, the Bank of Korea continued experts for improving its integrity and anti-
117) <Table IV- 2> Number of Female managers1) in the Bank of Korea
(persons, %)
2000 2005 2010 2016 2017
Female manager 35 76 90 175 190
Proportion2) 3.6 7.1 8.2 14.6 15.2
Notes: 1) Female staff above G5 grade. 2) Proportion of female managers among total staff.
111
<Figure IV- 4> Integrity Ombudsman Meeting
corruption policy, through operation for continuity of the payment and settlement sys-
example of the Integrity Ombudsman118) and tems in Korea, the Bank carried out its project
Integrity Partnership119) systems. to establish next-generation accounting and
The Bank will continue to devote its settlement systems based on operating systems
utmost efforts to maintaining its integrity as that are in accord with the Principles for
the central bank. Financial Market Infrastructures (PFMI). The
Bank successfully completed the first stage of
the project, aimed at identifying inadequacies
F. Upgrading Information and in the existing business processes and designing
Technology System the technological structure of the next-genera-
tion system, and established the master plan
During 2017 the Bank of Korea carried for carrying out the second-stage project that
out various projects to upgrade its IT sys- will be promoted from 2018. During the sec-
tem, in response to changes in the environ- ond-stage project, scheduled for completion in
ment including developments in information 2020, the Bank plans to establish a user-friend-
and communication technology (ICT). ly system with greater stability than the exist-
First, to strengthen the safety and business ing one and the capacity for responding more
118) This is a system that mandates consultation with the Integrity Ombudsman (comprising two external experts) on major projects whose scales
exceed a certain amount.
119) The Bank shares anti-corruption policy enforcement knowhow and materials regarding integrity-building tasks, based on agreements
concluded with public institutions having outstanding records in terms of corruption-prevention policy assessments.
112
flexibly to environmental changes. cyberterrorism. The Bank also utilized out-

Second, the Bank reformed the organiza- side experts to conduct an examination to
tion and business processes in its IT sector, in identify its security vulnerabilities from an
order to ensure their capacities for effectively objective perspective, and immediately made
supporting its survey and research functions. the improvements needed and took supple-
In January 2017 the Bank newly established a mentary actions to resolve the inadequacies
Data Analysis Task Force, charged with data identified. The Bank meanwhile continuous-
analysis, to improve its methods of acquisition ly examined the actual conditions concern-
and management of large-scale data as well ing personal information management in
as the related database, and strove to expand each department that handles personal
its analysis infrastructure. The Bank also information, and educated its staff on the
introduced the “Swift IT Support System,” to safe protection of personal information
ensure its ability to respond to urgent acquired for business purposes.
demands for IT services in a timely manner, Fourth, the Bank expanded its capability

and significantly reduced thereby the period in terms of the human and material
needed for establishing a system for the deliv- resources required for the safe management
ery of urgently-needed information. and improvement of its information systems.
Meanwhile, the Bank improved and added It conducted repeated trainings in respond-
functions to various of the information sys- ing to various hypothetical failures and dis-
tems necessary for its monitoring and analysis asters, in collaboration with the departments
of financial and economic conditions. It rein- concerned within the Bank and with other
forced the information sharing and research related financial institutions as necessary.
functions of its Market Intelligence System The Bank in addition upgraded its computer
(MI-NET), added a Financial Stability equipment, replaced its outdated servers as
Intelligence function specialized in tasks relat- appropriate, and significantly bolstered the
ed to financial stability, and expanded the stability of its data transfers by raising the
functions of its household debt database and speed of transmissions.
basic statistical data service systems.
Third, the Bank of Korea strengthened its
system for protecting information against the
G. Carrying out Construction of
increasingly sophisticated and persistent Integrated Annex Building
cyber threats. The Bank extended operation
of its security controls to a 24 hours a The Bank of Korea is currently proceeding
day/365 days a year basis and introduced with the construction of an integrated annex
cutting-edge information protection equip- building to reinforce the safety and security
ment, establishing thereby an around-the- of its headquarters as a nationally important
clock monitoring system, while at the same institution.120) The first annex building has
time working to heighten its capacities for been demolished in view of safety issues, and
responding to risks through the conduct of will be entirely rebuilt as an integrated annex
regular training exercises in combating building, while the second annex building,
113
which is worth preserving as a modern archi- Money Museum, a frequently-visited com-

tectural inheritance, and the main building, munication space for the general public, and
the Bank’s primary workspace, will continue completed this facility in October 2017.
to be used after their durability and safety Meanwhile, the Bank of Korea exerted
have been enhanced.121) efforts to ensuring the transparency and fair-
The Bank will in addition utilize the sec- ness of the construction process by entrust-
ond annex building as a visitor center, and ing the project to the Public Procurement
endeavor to expand the park and pedestrian Service. Accordingly, the Public
paths around its premises where citizens fre- Procurement Service is overseeing the entire
quently go, in order to expand its spaces for process, including the selection of the con-
openness and communication with the gen- structor currently taking place, and the con-
eral public. It is also striving to preserve its tract procedures. The Bank is also devoting
cultural heritage as a public institution, in efforts to carrying out the construction pro-
consideration of the historic symbolism of ject in a transparent manner, by strengthen-
the Bank of Korea Money Museum ing its internal monitoring system and
(Historical Site No. 280), a nationally-desig- responding to any related civil complaints.
nated cultural asset, and the entire premises
surrounding it. <Figure IV- 5> Bird’s eye view of the BOK’s
new headquarters building
The Bank of Korea successfully obtained
the various permits required for the construc-
tion of its new integrated annex building,
including alteration of the current state of
cultural assets (October 2016) and the con-
struction permit (January 2017), and com-
pleted the tasks related to the detailed design
of the building in June 2017. During June
the Bank finished its relocation122) to a nearby
temporary office site, which had been pre- Source: The Bank of Korea.
pared beforehand to ensure business continu-

ity during the construction period.
Prior to beginning the main construction
of the integrated annex building the Bank
constructed a temporary facility, to enable
continued operation of the Bank of Korea
120) To strengthen security, the spaces and lines for movement within buildings are categorized and managed in different ways depending upon
the degrees of importance of the facilities concerned. For safety, a focus has been placed on strengthening seismic performance and the
expansion of emergency facilities equipped with features for defense against EMP and CBR attacks.
121) The Bank of Korea headquarters consists of five buildings: the original building (completed in 1912), the main building (1987), the first
annex building (1964), the second annex building (1932) and the Sogong annex building (1965).
122) Most departments at the Head Office were relocated to a temporary office site nearby for public convenience, while tasks related to matters
such as currency exchange, supply and demand were transferred to the Bank’s Gangnam branch, which is equipped with a vault.
114
2. Financial Status Assets
As of the end of 2017, the total assets of

The Bank of Korea, in principle, issues the Bank of Korea stood at 470,584.7 billion
banknotes and coins based on its currency won, a decrease of 9,735.6 billion won from
issuing authority, and manages the issued the previous year-end level of 480,320.3 bil-
currency through loans to financial institu- lion won.
tions and the government, as well as pur- By type of asset, securities and due from
chases of government bonds. Given the sig- banks recorded 340,871.9 billion and
nificant increase in the inflow of foreign cur- 23,841.6 billion won, respectively, decreas-
rency, however, the Bank absorbs liquidity ing by 31,194.6 billion and 2,476.5 billion
by issuing Monetary Stabilization Bonds won than at the previous year-end, while the
(MSBs) and holds foreign exchange reserves exchange revaluation adjustment account on
in order to maintain market liquidity at an the asset side increased by 24,044.1 billion

appropriate level. Accordingly, the Bank’s won owing to the decrease in the
assets are largely made up of foreign curren- USD/KRW exchange rate.
cy securities and deposits from banks, while
its liabilities are mainly composed of curren- Liabilities and Capital
cy issued, MSBs issued and foreign currency
deposits. The total liabilities of the Bank of Korea
2. Financial Status
Consequently, the profits and losses of the at the end of 2017 were 455,562.5 billion
Bank of Korea are significantly influenced won, a decrease of 11,335.1 billion won
by the difference between the coupon rate from the previous year-end level of
for MSBs and the rate of return on foreign 466,897.6 billion won.
assets, as well as by foreign exchange rates. By type of liability, deposits recorded
The Bank’s capital consists of legal and 98,980.3 billion won, declining by 16,153.2
voluntary reserves, as well as unappropriated billion won from the previous year-end.
retained earnings. Meanwhile, in accordance Meanwhile, currency issued stood at
with Article 99 of the Bank of Korea Act, 107,907.6 billion won, increasing by
30 percent of net profits of the Bank are 10,525.3 billion won from the previous year-
allocated to the legal reserve,123) and some of end.
the residual net profits can be set aside to The total capital of the Bank as of the end
the voluntary reserve for specific purposes of 2017 increased by 1,599.5 billion won to
with the approval of the government. After 15,022.2 billion won, from the previous
the allocation, the remaining net profits are year-end level of 13,422.7 billion won.
paid to the government as tax revenue. By type of capital, the legal reserve and
unappropriated retained earnings(net profits)
123) With the revision of the Bank of Korea Act in 2011, the amount to be allocated to the legal reserve was adjusted from 10 percent to 30
percent of net profits.
115
increased by 1,013.4 billion won and 586.1

billion won, respectively.
Income and Expenses
In 2017, the Bank’s net profits increased

by 586.1 billion won from the previous year
level of 3,377.9 billion won to 3,964.0 bil-
lion won, as policy operation expenses
declined due to a decrease in interest rates
in Korea until 2016.
Operating revenue declined by 1,783.6
billion won to 12,242.5 billion won, mainly
because the profit on sales of securities
decreased by 1,157.2 billion won.
Operating expenses declined by 2,579.2
billion won from the previous year to
7,012.4 billion won as interest on MSBs
issued and loss on sales of securities fell by
480.0 billion and 1,073.6 billion won respec-
tively.
Disposal of Net Profits
Regarding the disposal of the net profits,

which totaled 3,964.0 billion won in 2017,
1,189.2 billion won was allocated to the
legal reserve, 41.5 billion won was voluntari-
ly reserved as a contribution to the Bounty
Fund for Raising Lump-sum Savings of
Farming and Fishing Households, and the
remaining 2,733.3 billion won was paid to
the government as tax revenue.
116
Independent Auditor’s Report and Financial Statements

2. Financial Status
117
118
<Table IV- 3>
Balance Sheets (As of December 31, 2017 and 2016)

(million won)
Subject 2017 2016

Assets
I. Current assets 451,370,624 460,759,286
1. Cash 2 156
2. Gold and silver bullions 5,137,100 5,794,461
3. Holdings of special drawing rights 3,615,181 3,478,035
4. Securities(Note 2) 340,871,922 372,066,535
a. National bonds 14,831,614 14,499,405
b. Government guaranteed securities and others - -
c. Foreign securities 326,040,308 357,567,130
5. Due from Banks (Note 3) 23,841,632 26,318,114
a. Due from banks current 13,348,877 11,547,623

b. Due from banks on time 10,492,755 14,770,491
6. Overdraft - -
7. Liquidity adjustment loans - -
8. Bills discounted - -
9. Loans on bills (Note 4) 17,185,503 17,328,528
10. Loans on securities (Note 4) - 1,745
2. Financial Status
11. Securities bought under resale agreement (Note 5) - -
12. Loans on Government (Note 4) 1,336,200 1,289,800
13. Loans on international finance organization (Note 4) 637,111 964,497
14. Foreign exchange 81,462 86,103
15. Agencies 1,281,940 1,058,533
16. Inter-office account - -
17. Other assets 57,382,571 32,372,779
(Exchange revaluation adjustment account) (24,044,080) (-)
II. Non-current assets 19,214,090 19,561,003
1. Investment asssets 18,697,073 19,053,990
a. Investments (Note 6) 10,972,501 11,338,609
b. Securities on investment 7,716,344 7,707,150
c. Telecommunication usage rights 69 72
d. Miscellaneous subscription rights 8,159 8,159
2. Tangible assets 507,988 495,064
3. Intangible assets 9,029 11,949
Total assets 470,584,714 480,320,289
119
Subject 2017 2016

Liabilities
I. Current liabilities 447,672,947 459,031,447
1. Currency issued 107,907,643 97,382,263
2. Monetary stabilization bonds issued (Note 7) 170,780,140 168,372,980
3. Monetary stabilization account 13,500,000 18,700,000
4. Government deposits 9,936,535 7,171,459
5. Deposits 98,980,294 115,133,461
a. Checking deposits 46,698,435 45,123,687
b. Settlement deposits - -
c. Liquidity adjustment deposits 1,420,400 1,074,541
d. Temporary deposits 5,217,950 7,103,632
e. Due to banks on demand 45,643,509 61,831,601
f. Other foreign deposits - -
6. Securities sold under repurchase agreement (Note 8) 10,000,000 12,850,000
7. Allocations of special drawing rights 3,659,902 3,893,999
8. Inter-office account - -
9. Other Liabilities 32,908,433 35,527,285
(Exchange revaluation adjustment account) (-) (3,632,853)
II. Non-current liabilities 7,889,532 7,866,142
1. Borrowings - -
2. Reserve for retirement allowances 173,188 158,992
3. Liabilities to international monetary institute 7,716,344 7,707,150
Total liabilities 455,562,479 466,897,589
Capital
I. Surplus 15,022,235 13,422,700
1. Retained earnings 15,022,235 13,422,700
a. Legal reserve 7,620,419 6,607,057
b. Voluntary reserve 3,437,768 3,437,768
c. Unappropriated retained earnings for term 3,964,048 3,377,875
Total capital 15,022,235 13,422,700
Total liabilities and capital 470,584,714 480,320,289
120
<Table IV- 4>
Statements of Income (For the years ended December 31, 2017 and 2016)
(million won)
Subject 2017 2016

I. Operating revenue 12,242,525 14,026,080
1. Interest received and discount fees 8,225,834 8,580,831
(1) Interest on securities (Note 9) 6,645,749 6,621,175
(2) Interest on due from banks 166,403 106,311
(3) Interest on overdraft 65 10
(4) Discount fees on domestic bills - -
(5) Interest on loans on bills 119,323 125,652
(6) Interest on loans on securities 45 41
(7) Interest on liquidity adjustment loans 68 169

(8) Interest on securities bought under resale agreement 4,248 1,750
(9) Interest on loans on Government 4,539 4,065
(10) Interest on loans on international finance organization 4,313 815
(11) Miscellaneous interest received 1,281,081 1,720,843
2. Commissions received 151,713 111,678
2. Financial Status
3. Profit on sales of securities 3,857,595 5,014,780
4. Gain on redemption of monetary stabilization bonds 7,383 -
5. Profit on foreign exchange transaction - 318,791
6. Profit on gold and silver bullions - -
II. Operating expenses 7,012,400 9,591,585
1. Interest expense and discount fees 4,558,851 5,969,013
(1) Interest on deposits 550,451 767,586
(2) Interest on monetary stabilization account 211,808 161,921
(3) Interest on monetary stabilization bonds issued 2,579,048 3,059,102
(4) Interest on securities sold under repurchase

agreement (Note 10) 184,426 189,315
(5) Interest on borrowings - -
(6) Miscellaneous interest paid 1,033,118 1,791,089
2. Commissions paid 110,381 126,132
3. Loss on sales of securities 1,684,984 2,758,572
4. Loss on redemption of monetary stabilization bonds 21,306 68,713
121
Subject 2017 2016

5. Loss on foreign exchange transaction 17,529 22,097
6. Loss on gold and silver bullions - -
7. International financial institutions contribution 24,688 46,359
8. Banknote and coin manufacturing expenses 133,013 153,856
9. Provision for severance pay 27,999 28,478
10. Depreciation expense 25,537 23,117
11. Amortization of intangible assets 5,296 5,665
12. General and administrative expenses 402,816 389,583
III. Operating income 5,230,125 4,434,495
IV. Non-operating income 145,515 19,364
1. Income from disposal of assets 367 1,970
2. Miscellaneous profits 145,148 17,394
V. Non-operating expense 67,499 10,223
1. Donation 60,000 10,000
2. Loss from disposal of assets 6,947 7
3. Miscellaneous loss 552 216
VI. Income before income taxes 5,308,141 4,443,636
VII. Income taxes 1,344,093 1,065,761
VIII. Net income 3,964,048 3,377,875
122
<Table IV- 5>
Statements of Changes in Equity

(For the years ended December 31, 2017 and 2016)
(million won)
Subject Capital Retained earnings Sum
I. Balance as at January 1, 2016 - 11,945,751 11,945,751
II. Payment to General Revenue Account of the Government -1,851,405 -1,851,405
III. Contribution to Fund for Farming and Fishing Households -49,521 -49,521
IV. Net income 3,377,875 3,377,875
V. Balance as at December 31, 2016 - 13,422,700 13,422,700
VI. Balance as at January 1, 2017 - 13,422,700 13,422,700

VII. Payment to General Revenue Account of the Government -2,322,970 -2,322,970
VIII. Contribution to Fund for Farming and Fishing Households -41,542 -41,542
IX. Net income 3,964,048 3,964,048
X. Balance as at December 31, 2017 - 15,022,235 15,022,235
2. Financial Status
123
<Table IV- 6>
Statements of Appropriation of Retained Earnings

(For the years ended December 31, 2017 and 2016)
(million won)
Subject 2017 2016
I. Unappropriated retained earnings 3,964,048 3,377,875
1. Balance at beginning of year - -
2. Net income 3,964,048 3,377,875
II. Appropriation of retained earnings 3,964,048 3,377,875
1. Legal reserve 1,189,214 1,013,363
2. Voluntary reserve 41,467 41,542
a. Contribution to Fund for Farming and Fishing (41,467) (41,542)

Households
b. Reserve for specific purposes (-) (-)
3. Payment to General Revenue Account of the 2,733,367 2,322,970

Government
III. Unappropriated retained earnings to be

carried over to subsequent year - -
124
Notes to the financial statements
1. Significant accounting policies
A. Basis of preparation
Except in the case specifically articulated by related laws and regulations, the presented finan-
cial statements have been prepared in accordance with the Accounting Regulations enacted
under Article 8 of the Bank of Korea and Article 33 of the Bank’s Article of Incorporation.
The generally accepted accounting principles shall apply upon matters not determined by the
Accounting Regulations of the Bank. Meanwhile, considering the insignificance of cash flow
information to the functions of the Bank as a central bank, statements of cash flow have not
been prepared. In addition, the statements of appropriation of retained earnings have been

separated from the notes and reported as separate financial statements in consideration of
their significance.
B. Recognition and measurement of assets and liabilities
Assets are recognized at the date of acquisitions and liabilities are recognized when obligated.
2. Financial Status
Assets are not assessed at the fair values but recorded at the acquisition cost or the amortized
cost in the balance sheet.
(1) Securities
Debt securities are measured at the amortized cost while equity securities are measured at the
acquisition cost. The Bank applies the specific identification method to debt securities and the
moving average method to equity securities when calculating the acquisition cost to recognize
the realized gains or losses on sales of the securities.
(2) Investment assets
Investment assets are measured at the acquisition cost. The Bank applies the moving average
method to determine the acquisition cost of equity securities in investment assets.
C. Recognition of revenues and expenses
Revenues and expenses are recognized on the accrual basis.
125
D. Foreign exchange translation and recognition of profits and losses on foreign exchange
transactions
(1) Foreign exchange translation
Assets and liabilities denominated in foreign currencies are translated into Korean won
applying the exchange rate or the arbitrage rate at the end of the reporting period. The gains
and losses on the translation are not recognized in profit or loss but as a foreign exchange
revaluation adjustment account which is a deferred account. Revenues and expenses
denominated in foreign currencies are translated into Korean won applying the exchange rate
at the date of the transaction.
(2) Recognition of profits and losses on foreign exchange transactions
Profits and losses on foreign exchange transactions are determined by the difference between
the Korean won equivalent received from the sales of foreign currency and the equivalent
value of purchase cost of the foreign currency.
E. Transactions under resale and repurchase agreement
Transactions under resale and repurchase agreement are loan and borrowing transactions
secured by securities. Purchasing securities under resale agreement is accounted for as
securities bought under resale agreement and selling securities under repurchase agreement is
accounted for as securities sold under repurchase agreement on the Balance Sheet.
F. Depreciation of tangible assets and amortization of intangible assets
(1) Tangible assets
Buildings are depreciated using the straight-line method, while other tangible assets are
depreciated on the declining balance method. Tangible assets are presented on the Balance
Sheet at the acquisition cost less accumulated depreciation.
(2) Intangible assets
Development costs are amortized based on straight-line method whereas software is amortized
using declining balance method and presented on the Balance Sheet at the acquisition cost
less accumulated amortization.
126
G. Reserve for retirement allowances
Reserve for retirement allowances of the Bank under the retirement policy shows an accrued
estimation for retirement at the end of the reporting period. Under the National Pension
Scheme of Korea, the Bank transferred a certain portion of retirement allowances for
employees to the National Pension Fund. The amount transferred to the National Pension
Fund and the plan assets for the retirement pension which is under the Employee Retirement
Benefit Security Act is reflected in the financial statements as a reduction of the reserve for
retirement allowances.
H. Income taxes
Income taxes comprise the current tax expense calculated for the periods in accordance with
statutory corporate tax regulations and the regional tax added to the corporate income tax.

2. Financial Status
127
2. Securities
Details of securities as of December 31, 2017 and 2016 are as follows

(won)
Description
2017 2016
Subject Type
National bonds Korean Treasury bonds 14,831,614,492,726 14,499,404,599,712
Government Guaranteed
securities and others – – –
Foreign securities Foreign government
bonds and others 326,040,308,117,925 357,567,129,959,574
Total 340,871,922,610,651 372,066,534,559,286
3. Due from Banks
Details of due from banks as of December 31, 2017 and 2016 are as follows
(won)
Description
2017 2016
Subject Institutions
Due from banks current Foreign commercial banks and others 13,348,877,127,113 11,547,623,470,767
Due from banks on time Foreign commercial banks and others 10,492,755,332,524 14,770,490,928,485
Total 23,841,632,459,637 26,318,114,399,252
4. Loans
Details of loans as of December 31, 2017 and 2016 are as follows
(won)
Description
2017 2016
Subject Debtor
Loans on bills Local financial institutions 17,185,503,000,000 17,328,528,000,000
Loans on government Ministry of strategy
1,336,200,000,000 1,289,800,000,000
and finance
Loans on international
IMF 637,110,723,750 964,496,868,875
finance organization
Loans on securities Local financial institutions - 1,745,247,980
Total 19,158,813,723,750 19,584,570,116,855
128
5. Securities Bought under Resale Agreement
Details of securities bought under resale agreement as of December 31, 2017 and 2016 are as
follows
(won)
Description
2017 2016
Subject Counterparty
Securities bought under
– – –
resale agreement in won
Foreign securities bought
– – –
under resale agreement
Total – –
6. Investments

Details of investments as of December 31, 2017 and 2016 are as follows
(won)
Description
2017 2016
Subject Investee
Local investments Export-Import Bank of Korea 1,165,000,000,000 1,165,000,000,000
Korea Housing Finance
645,000,000,000 645,000,000,000
Corporation
2. Financial Status
Subtotal 1,810,000,000,000 1,810,000,000,000
International finance
Off-shore investments 9,162,501,271,326 9,528,608,749,195
organization
Total 10,972,501,271,326 11,338,608,749,195
7. Monetary Stabilization Bonds Issued
Monetary stabilization bonds issued as of December 31, 2017 and 2016 are as follows
(won)
Description 2017 2016

Coupon bonds 155,820,139,748,343 153,322,980,308,065
Discount bonds 14,960,000,000,000 15,050,000,000,000
Total 170,780,139,748,343 168,372,980,308,065
129
8. Securities Sold under Repurchase Agreement
Details of securities sold under repurchase agreement as of December 31, 2017 and 2016 are
as follows
(won)
Description
2017 2016
Subject Counterparty
Securities sold under
Local financial institutions 10,000,000,000,000 12,850,000,000,000
repurchase agreement in won
Foreign securities sold under Foreign investment
– –
repurchase agreement banks and others
Total 10,000,000,000,000 12,850,000,000,000
9. Interest on Securities
Details of interest on securities for the years ended December 31, 2017 and 2016 are as
follows
(won)

Interest on securites in won 450,825,399,281 507,884,227,896
Interest on foreign securities 6,194,923,681,250 6,113,290,852,334
Total 6,645,749,080,531 6,621,175,080,230
10. Interest Expenses on Securities Sold under Repurchase Agreement
Details of interest expenses on securities sold under repurchase agreement for the years ended
December 31, 2017 and 2016 are as follows
(won)

Interest expenses on securities sold
under repurchase agreement in won 183,501,130,123 189,259,774,422
Interest expenses on foreign securities

sold under repurchase agreement 924,989,661 54,949,663
Total 184,426,119,784 189,314,724,085
130
1. Organization Chart of the Bank of Ko
Planning & Coordination Department (5) Strategic Planning T
Office of Branch Affairs (2) Branch Affairs Plan
Deputy Governor Office of Legal Affairs (2) Financial Legal Aff
Monetary Policy Board Secretariat (1) MPB Administrativ
Press Office Secretariat
Communications Department (4) Communications Pl
Office of Economic Education (2) Education Planning
Deputy Governor Information Technology IT Planning Team,

Department [2](11) Team, Monetary Po
Human Resources & Administration

Human Resources
Department (4)
Office of Property Management (3) Property Administr
Security Office (2) Security & Emergen

Construction Project Management
The Bank of Korea Academy (5) Program Planning &

Senior Deputy Deputy Governor Overall Research &
Governor
Governor Research Department [3](13) Team,Inflation Rese
Study Team),Global
Statistics Planning
Advisor to Economic Statistics Department
Team, Balance of
Governor [2](13)
National Expendit
Financial Stability P
Financial Stability Department [2](8)
Division(Bank Anal
Office of Bank Examination (4) Examination Plann
Monetary Policy Pl
Deputy Governor Monetary Policy Department [1](6)
Division(Monetary
Financial Markets Department [1](5) Financial Market A
Payment & Settlement Payment Systems P

Systems Department [2](8) Systems Stability T
Office of Treasury & Debt Securities (2) Treasury Team, De
Currency Department (6) Issue Policy Team,
International Plannin
Deputy Governor International Department [2](8)
Finance Research T
5 Representative Offices New York Represen
International Affair
International Affairs Department (6)
Knowledge Partner
Reserve Management
Reserve Management Group [3](11)
Portfolio 1 Team, Glob
Economic Research Institute <6> Research Planning

Micro & Institution
Branch(16): Busan, Daegu & Gyeongbuk, Mokpo, Gwangju

Chungnam, Chungbuk, Gangwon, Incheon, Jej
Gangneung, Ulsan, Pohang, Gangnam
Auditor Audit Planning Tea

Audit Department (6)
Statistics Audit Tea
Notes : 1) Busan, Daegu & Gyeongbuk, Gwangju & Jeonnam, Jeonbuk, Daejeon & Chungnam, Gangwon, Incheon, Jeju, Gyeonggi, Gyeongnam, Gangnam 2) Busan, Daegu & Gyeong
4) Busan, Daegu & Gyeongbuk, Gwangju & Jeonnam, Daejeon & Chungnam, Incheon 5) Jeju * [ ] Divisions, ( ) Teams, < > Teams in Economic Research Institute
ank of Korea(As of December 31, 2017)
Strategic Planning Team, Operational Risk Team, External Affairs Team, Organization Team, Budget & Accounting Team
Branch Affairs Planning & Coordination Team, Regional Economies Team
Financial Legal Affairs Team, General Legal Affairs Team
MPB Administrative Support Team
Communications Planning & Coordination Team, Communications Management Team, New Media Team, BOK Money Museum Team
Education Planning & Coordination Team, Education Team
IT Planning Team, IT Security Team, IT Quality Management Team, IT Service Team,Information Systems Division(Accounting Information Systems Team, Management Information Systems
Team, Monetary Policy Information Systems Team, New Accounting Information Systems Development Team), IT Infrastructure Division(Mainframe Systems Team, Server Team, Network Team)
Human Resources Team, Payroll & Welfare Team, Labor Relations Team, Expense Accounting Team
Property Administration Team, Facilities Administration Team, Procurement Service Team
Security & Emergency Planning Team, Guard Team
Program Planning & Coordination Team, Global Program Team, Program Design & Management Team, Adminstration & Support Team, Faculty Team
Overall Research & Forecasting Team, Economic Activities Analysis Team,Macroeconomic & Fiscal Research Team, International Trade Research Team,Industry & Labor Research
Team,Inflation Research Division(Inflation Monitoring & Forecasting Team, Inflation Analysis Team), Macroeconomic Modeling Division(Model Forecasting Team, Macroeconomic Model
Study Team),Global Economy Research Division(Global Economy analysis Team, U.S. & Europe Economies Team, Asia-Pacific Economies Team, China Economies Team)
Statistics Planning Team, Economic Survey Team, Statistics Information Team, Monetary & Financial Statistics Division(Monetary & Financial Statistics Team, Flow of Funds
Team, Balance of Payments Team, International Investment Position Team, Corporate Statistics Team), National Accounts Division(National Accounts Coordination Team,
National Expenditure Statistics Team, Input-Output Statistics Team, National Balance Sheet Team, Price Statistics Team)
Financial Stability Planning & Coordination Team, Systemic Risk Analysis Team, Financial Stability Analysis Team, International Financial Regulation Team,Financial System Analysis
Division(Bank Analysis Team, Non-Bank Analysis Team), Financial Stability Research Division(Financial Stability Research Team, Financial System Research Team)
Examination Planning Team, Commercial Bank Team I, Commercial Bank Team II, Specialized Bank Team
Monetary Policy Planning & Coordination Team, Credit & Reserves Policy Team, Monetary Policy Analysis Team, Monetary Policy Communication Team, Monetary Policy Research
Division(Monetary & Credit Policy Research Team, Policy Framework Research Team)
Financial Market Affairs Team, Market Operations Team, Money Markets Team, Capital Markets Division(Fixed Income Markets Team, Equity Markets & Corporate Finance Team)
Payment Systems Policy Team, Payment Systems Research Team, Payment Systems Management Team, Loans & Settlements Team,Payment Systems Oversight Division(Payment
Systems Stability Team, Payment Systems Risk Management Team), e-Finance Division(e-Finance Planning Team, e-Finance Research Team)
Treasury Team, Debt Securities Team
Issue Policy Team, Issue Planning Team, Cash Services Team, Cash Processing 1 Team, Cash Processing 2 Team, Currency Research Team
International Planning & Coordination Team, Foreign Exchange Accounting Team, Foreign Exchange Market Team, International Finance Division(Capital Flows Analysis Team, International
Finance Research Team), Foreign Exchange Business Division(Foreign Exchange Review Team, Foreign Exchange Investigation Team, Foreign Exchange Information Management Team)
New York Representative Office, Frankfurt Representative Office, Tokyo Representative Office, London Representative Office, Beijing Representative Office
International Affairs Strategy & Coordination Team, International Organization Team, Asia-Pacific Cooperation Team, Financial Cooperation Team, International Relations Team,
Knowledge Partnership Program Team
Reserve Management Planning Team, Risk Management Team, Reserve Investment Division I(Investment Strategy Team, FX Team, External Fund Management Team), Reserve Investment Division II(Global Treasuries
Portfolio 1 Team, Global Treasuries Portfolio 2 Team, Global Credit Portfolio Team, Asset-Backed Securities Portfolio Team), Reserve Management Support Division(Settlement Team, Reserve Information System Team)
Research Planning & Coordination Team, Financial & Monetary Economics Team, International Economics Team, Macroeconomics Team,
Micro & Institutional Economics Team, North Korean Economy Team
uk, Mokpo, Gwangju & Jeonnam, Jeonbuk, Daejeon & General Administration Team1), Regional Economy Research Division(Planning & Financial Research Team, Economic
angwon, Incheon, Jeju, Gyeonggi, Gyeongnam, Research Team)2), Regional Economic Research Team3), Credit, Reserves & Administration Team, Cash Processing
g, Gangnam Team4), Cash Processing Section5)
Audit Planning Team, Planning & Administration Audit Team, Policy Making & Operation Audit Team, Foreign Reserve Management & International Business Audit Team, Research &
Statistics Audit Team, IT Audit Team
san, Daegu & Gyeongbuk, Gwangju & Jeonnam, Daejeon & Chungnam, Gangwon, Jeju, Gyeonggi 3) Mokpo, Jeonbuk, Chungbuk, Gyeongnam, Incheon, Gangneung, Ulsan, Pohang
arch Institute
2. Contributing Departments & Authors by Section
Section Author

1. History and Mission Monetary Policy Dept. Lee, Ji Hye
Lee, Byung Rok
2. Organization
A. Monetary Policy Board Monetary Policy Board Secretariat Kim, Jong Won
B. Executive Officers and Auditor Secretariat Kim, Jin Yong
C. Departmental Organization and Planning & Coordination Dept. Shin, Ji Sun
Responsibilities Lee, Hyeon Ah
II. Economic Trends

1. Real Economy
A. Global Economy Research Dept. Lee, Chang Kee
Kim, Yoon Kyum
Appendix
B. Domestic Economy Research Dept. Jin, Chan Il
Jang, Hee Chang
Kim, Kyung Keun
Chung, Sung Yup

Office of Branch Coordination Lee, Jong Sung
Kim, Byung Jo
A. International Financial Markets Research Dept. Lee, Chang Kee
Kim, Yoon Kyum
B. Domestic Financial Markets Financial Markets Dept. Na, Young In
International Dept. Baek, Bong Hyun
III. The Bank of Korea’s Conduct of Its

Business
1. Medium-term Strategies Planning&Coordination Dept. Choi, Yong Woon
2. Monetary Policy
A. Inflation Target Research Dept. Lee, Dong Weon
B. Base Rate Monetary Policy Dept. Lim, Kun Tae
C. Lending and Deposit Facilities Monetary Policy Dept. Bong, Kwan Soo
Payment&Settlement Systems Dept. Woo, Dong Jin
D. Open Market Operations Financial Markets Dept. Kim, Bo Keong
E. Monetary Policy Communication Monetary Policy Dept. Lim, Kun Tae
Monetary Policy Board Secretariat Kim, Jong Won
135
Section Author
A. Analysis and Evaluation of Financial Financial Stability Dept. Park, Jung Min
Stability Conditions Office of Bank Examination Yun, Hyun Cheol
B. Macroprudential Policies for the International Dept. Gu, Jong Hwan
Foreign Exchange Sector Kim, Min Kyoo
C. Strengthening of Multilayered Financial International Affairs Dept. Choi, Mun Seong
Safety Nets Kim, Joo Yeun
D. Activation of Emergency Response Financial Markets Dept. Na, Young In
System against Financial Instability
A. Issuance Currency Dept. Lee, Dong Gyu
B. Circulation Currency Dept. Ku, Hyung Kwan
C. Domestic and International Currency Dept. Lee, Dong Gyu
Cooperation
A. Operation of BOK-Wire+ Payment&Settlement Systems Dept. Bae, Moon Sun
B. Oversight and Risk Management Payment&Settlement Systems Dept. Bae, Moon Sun
C. Enhancement of Payment and Payment&Settlement Systems Dept. Bae, Moon Sun
Settlement System
D. International Cooperation Payment&Settlement Systems Dept. Bae, Moon Sun
6. Foreign Exchange and International
Cooperation Affairs
A. Foreign Exchange Affairs International Dept. Gu, Jong Hwan
B. Reserve Management Reserve Management Group Choi, Eun Ji
C. International Cooperation International Affairs Dept. Kang, Ji Yeon
A. Research Activities Research Dept. Choi, In Hyup
Economic Research Institute Kim, Jae Young
Office of Branch Coordincation Kim, Yong Hyun
B. Compilation of Statistics Economic Statistics Dept. Jeon, Ki Young
A. Treasury Business Office of Treasury&Debt Securities Moon, Hyun Joo
B. Securities Business Office of Treasury&Debt Securities Kim, Jeong Soon
C. Fund Management Business Office of Treasury&Debt Securities Kim, Jeong Soon
A. Expansion of Public Communication Communications Dept. Kim, Sang Wook
Lee, Gyu Hwan
Son, Young Hee
B. Economic and Financial Education Office of Economic Education Oh, Kwon Young
136
Section Author
A. Organizational Structure Planning & Coordination Dept. Shin, Ji Sun
Lee, Hyeon Ah
B. Organization Management Methods Planning & Coordination Dept. Shin, Ji Sun
Lee, Hyeon Ah
C. Education and Training The Bank of Korea Academy Choi, Jin Man
D. Expanding Employment and Personnel&Administration Dept. Choi, Chang Hun
Enhancing Fairness in Recruitment
E. Expanding Corruption Prevention and Personnel&Administration Dept. Choi, Chang Hun
Culture of Integrity
F. Upgrading Information and Information Technology Dept. Lee, Hye Lim
Technology System
G. Carrying out Construction of The Construction Project Ko, Kyeong Cheol
Integrated Annex Building Management Team Um, Tae Kyoon
2. Financial Status Planning & Coordination Dept. Jeon, Eun Hee
Appendix
Appendix
1. Organization Chart of the Bank of Korea Planning & Coordination Dept. Shin, Ji Sun
Lee, Hyeon Ah
2. Contributing Departments & Authors by Communications Dept. Lee, Gyu Hwan

Section
Planning and Coordinating Communications Dept. Son, Jin Kook

Han, Jung Hoon
Lee, Gyu Hwan
Choi, You Jeong
137
*Annual(2017)판권 2018.6.25 5:56 PM 페이지153 001 Adobe PDF
2017 Annual Report
Publisher Lee, Juyeol

Editor Lee, Joong Shik
Published by The Bank of Korea
67, Sejongdaero, Jung-Gu, Seoul, 04514, Korea
www.bok.or.kr
Published on June 29, 2018
Printed by Jeil Printech Co., Ltd.
■ This material is posted on the web-site of the Bank of Korea

(http://www.bok.or.kr > Research Papers > Periodicals > Annual > Annual Reports)
■ Please contact Communication Planning & Coordination Team, Communication Department,

the Bank of Korea(Tel: +82-2-759-4520, publicinfo@bok.or.kr)
Copyright © THE BANK OF KOREA. All Rights Reserved
ISSN 0067-3706

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「The Bank of Korea Act」

•To contribute to the sound development of the national

Preface by the Governor

Monetary Policy Board

Chairman Lee, Juyeol

I. Overview of the Bank of Korea ・

II. Economic Trends ・

III. The Bank of Korea’s Conduct of Its Business ・

IV. Management Status ・

<Table I- 1> Number of the Monetary Policy Board meetings ・

<Table II- 1> World economic growth ・

<Table III- 1> Medium-term strategies in 2017 ・

<Table III- 5> The Scale of Liquidity Adjustment of

<Table III-32> The number of visitors of the Bank’s main website ・

<Table IV- 1> Number of new hires per year ・

<Figure I- 1> The first Monetary Policy Board Meeting ・

<Figure II- 1> International oil prices ・

<Figure III- 1> Inflation target and CPI ・

<Figure III-12> Destruction of banknotes and coins ・

<Figure IV- 1> Operational Risk Management Structure of

I. Overview of the Bank of Korea

1. History and Mission

<Figure I- 1> The first Monetary Policy Board Meeting

Source: The Bank of Korea.

<Figure I- 2> The Monetary Policy Board Meeting

Source: The Bank of Korea.

impetus for accelerated discussions of legisla-

I. Overview of the Bank of Korea

1. History and Mission

<Figure I- 3> Members of the Monetary Policy Board

appointed members are individuals with sub-

I. Overview of the Bank of Korea

cies, open market operations, payment and

B. Executive Officers and <Figure I- 4> Executive officers and auditor

The executive officers of the Bank of Governor

Korea include the Governor, the Senior Lee,

ticipates in the Board’s decision-making

ing the Bank. If the Governor is unable to

Governor serves as acting Governor. accounts, coordinates functions among

I. Overview of the Bank of Korea

Research Department tary and credit policy; and prepares the

Economic Statistics Department Payment & Settlement Systems

I. Overview of the Bank of Korea

Economic Research Institute

Overseas Representative Offices

1. Real Economy International Oil Prices Rise to 60 Dollars-

A. Global Economy International oil prices (Dubai crude basis)

II. Economic Trends

<Table II- 1> World economic growth1) 40 40

2015 2016 2017e

Euro area 2.1 1.8 2.4

B. Domestic Economy <Table II- 4> Final consumption1)

Note: 1) Figures in parentheses are year-on-year rates.

cent rate of GDP growth (in real terms) in

<Table II- 5> Fixed capital formation1)

II. Economic Trends

Textiles, leather & 2017

Construction sector production rose by 7.1 (2) Employment and Wages

II. Economic Trends

entering the workforce.10) Employment rate(After - - 60.9 60.8 60.8 60.9

Slowdown in Wage Increases (3) Prices

II. Economic Trends