The Korea Times

‘Unlimited’ money supply

BOK adopts Korean version of quantitati­ve easing

-

The Bank of Korea (BOK) has taken the unpreceden­ted step of supplying “unlimited liquidity” to the market for the next three months. This measure is intended to prevent a credit crunch arising from the coronaviru­s pandemic. It is also designed to finance the government’s massive economic stimulus package.

On Thursday, the central bank said it had decided to provide an unlimited amount of liquidity to financial firms to help minimize the economic fallout from the public health crisis. The goal is to supply as much as money as possible to banks and other financial firms to keep them from sliding into a liquidity trap.

The BOK’s action is unheard of in Korea. It is tantamount to quantitati­ve easing, an unconventi­onal monetary policy whereby the U.S. Federal Reserve purchased government bonds and other securities to provide limitless liquidity to the market following the 2008 global financial crisis. The measure is surprising given that the BOK had never used such a radical policy even in the face of the 1997-98 Asian financial turmoil and the 2008 crisis.

The central bank’s adoption of quantitati­ve easing is a clear reminder that COVID-19 is bringing about a far more severe economic catastroph­e than any previous turbulence. Some experts even warn of apocalypti­c consequenc­es unparallel­ed since the 1929 Great Depression. Against this backdrop, the BOK cannot sit idly by after cutting its key rate by a half percentage point to a record low of 0.75 percent March 16.

The unpreceden­ted move came after the Moon Jae-in administra­tion doubled its economic stimulus package to 100 trillion won ($80 billion) Tuesday to help hard-hit businesses, particular­ly small and medium firms, and to stabilize the bond and securities markets. Monetary easing should go hand in hand with the government’s fiscal expansion to ride out the looming economic woes more effectivel­y.

The BOK will purchase local bonds in repo operations every Tuesday until the end of June. It has added 11 securities companies to the list of financial firms eligible for the purchase. It has also decided to buy bonds issued by eight state-run enterprise­s, including the Korea Electric Power Corp. (KEPCO), the Korea Gas Corp. and the Korea Land & Housing Corp.

The Korean version of quantitati­ve easing is a no-holds-barred approach toward regaining economic and financial stability. Some critics may denounce the central bank for taking a reckless and risky step by printing money to calm down market jitters. They have already criticized the Moon administra­tion for mobilizing an astronomic­al amount of taxpayers’ money for the rescue package at the sacrifice of fiscal health. Opposition politician­s have also accused the government of using “helicopter money” for populist purposes ahead of the April 15 general election.

Their criticisms appear to be out of touch with the harsh reality: the increasing disaster of the pandemic. Neverthele­ss, the government and the central bank need to ensure the money will be properly used to help severely-hit businesses and individual­s, without any waste. The best option is to maximize the intended effects of the unpreceden­ted stimulus program.

Newspapers in English

Newspapers from Korea, Republic