Issuing banknotes and coins
The Bank of Korea has the exclusive right to issue banknotes and coins in the Republic of Korea. Their dimensions, designs and denominations are determined by the Monetary Policy Committee with Government approval. The banknotes and coins thus issued have the status of legal tender within the country for all transactions, both public and private, without limitation.
Currently, there are four different denominations of banknotes in circulation: ₩1,000, ₩5,000, ₩10,000 and ₩50,000
and four denominations of coins: ₩10, ₩50, ₩100 and ₩500.
Conducting monetary and credit policy
The most important mission of the Bank of Korea is formulating and implementing monetary and credit policy. This is a process of controlling the supply or cost of money in order that the economy may grow in a sound manner on the basis of price stability. To this end, the Bank conducts monetary and credit policy with an emphasis on price stability while taking into consideration such matters as economic growth and financial market stability.
In order to achieve the ultimate goal of maintaining price stability, the Monetary Policy Committee of the Bank sets the Base Rate every month after overall consideration of price movements, economic activity and financial market conditions. Then the Bank steers the call rate to converge on the newly-set level of the Base Rate using its policy instruments. The change in the call rate affects market interest rates such as yields on CDs and Treasury bonds, and banks' deposit and loan interest rates. These changes in interest rates tend to influence consumption and investments and, as a result, inflation.
The Bank's monetary policy is conducted mainly through open market operations, apart from which the Bank uses lending and deposit facilities and reserve requirements policy.
Bankers' bank and government's bank
The Bank of Korea makes loans to and receives deposits from banks, thus serving as the banker to the banking sector.
The bank conducts credit operations with banks by rediscounting commercial bills or by extending loans against eligible collateral with maturities of up to one year.
As the lender of last resort, the Bank may extend exceptional loans to banking institutions in periods of serious emergency.
As the fiscal agent of the government of the Republic of Korea, the Bank of Korea carries out various kinds of businesses for the government in accordance with the Bank of Korea Act and other relevant laws.
Developing and managing payment systems
The Bank of Korea has onus for the operation and management of the nation's payment systems.
The bank provides settlement facilities to financial intermediaries by use of their current accounts with the Bank for final settlement purposes.
The bank operated a real-time gross settlement system for large-value interbank fund transfers, named BOK-Wire, since mid-December 1994. BOK-Wire was renamed BOK-Wire+ in April 2009, when a hybrid system was added to the system with such features as a continuous bilateral and multilateral offsetting mechanism.
Conducting supervisory functions for financial institutions
The Bank of Korea conducts supervisory functions for financial institutions as stipulated in the Bank of Korea Act and other related financial acts. The Bank may request information from banks and from non-bank financial institutions that enter into agreements to hold current account with it, when it deems necessary for the implementation of monetary policy.
The bank may request the Financial Supervisory Service (FSS) to examine financial institutions within a determined specific range. It may also require the FSS to have staff of the Bank participate on a joint basis in the examination of financial institutions.
Compilation of statistics and economic research
The bank compiles statistics which are essential to developing appropriate economic policies across all sectors including government. These include money and banking statistics, national income statistics, the producer price index, balance of payments statistics, flow of funds statistics, input-output tables, etc.
The bank carries out research on national and worldwide economic developments in order to formulate effective monetary policy and help advise the government on various economic policy options. It also publishes various periodicals, such as the annual report and the monthly and quarterly bulletins, to provide accurate and up-to-date information on the economy to the public.
Carrying out foreign exchange business and managing the official foreign reserves
The Bank of Korea does not have targets for the exchange rate and leaves it to be determined in the market. The Bank, however, does occasionally conduct smoothing operations in concert with the government in order to moderate disorderly movements prompted by herd behavior and the like.
To enhance the soundness of the foreign exchange sector, the Bank strives to maintain Korea's external debts at an appropriate level through monitoring inflows and outflows of foreign exchange and inspects and oversees the foreign exchange transactions of banks. The Bank also enters into currency swap agreements with other central banks to ensure ready access to foreign currencies when markets are disorderly.
The bank holds and manages the nation's foreign reserves at an appropriate level so that they serve as a safeguard in emergencies. The Bank invests the reserves mainly in safe and liquid foreign financial assets and strives to improve their profitability insofar as this does not detract from their safety.
The bank maintains close cooperation with other central banks and exchanges information and views with other policy-makers within multilateral organizations such as the BIS and IMF. The Bank also holds international seminars and workshops to share the nation's experience in having achieved remarkable economic development and overcoming financial crises. In recent years, The Bank has taken a leading role in establishing a global financial safety net as the central bank of the G-20 Summit chair nation.
