The story
Founded by Government of South Korea on Jun 12, 1950.1
1950–1970
The Bank of Korea was established on 12 June 1950 under the Bank of Korea Act passed of 5 May 1950, taking over assets and operations from the simultaneously liquidated Bank of Chōsen. It was given a wide range of functions in relation to monetary and financial policy, banking supervision, and foreign exchange policy.
The Korean War began only thirteen days after the bank was created, forcing the Head Office to relocate to Daejon, Daegu and Busan. It returned to Seoul after the Incheon landings. The bank's 89 boxes of silver and gold bullion was moved by the military to the Jinhae naval station and then given to the New York Federal Reserve Bank to pay for South Korea's entry into the IMF and International Bank of Reconstruction and Development in 1955. The first Bank of Korea notes circulated after June 1950 alongside older notes of the Bank of Chōsen, which were flooded into the market by North Korean forces. To stop a liquidity crisis during the war, the bank instituted a limit on withdrawals of ₩10,000 per week and ₩30,000 per month for households. It also tried to fight inflation with a Maximum Loan Ceiling System in January, 1951 which set quarterly caps on the increase in general loans and required prior approval for special or general purpose loans exceeding 50 million won. The bank repaid $470 million in aid from the UN Korean Reconstruction Agency and Economic Cooperation Administration beginning in 1952.
After the Korean War, inflation remained high with a 48 percent annual increase in wholesale prices in Seoul from 1954 to 1956. The Korea Development Bank (KDB) was created on April 1, 1954 to rebuild the country, taking over former operations of the Japanese-era Chōsen Industrial Bank, but faced opposition from the Bank of Korea which saw it as a threat to centralization under the control of the Minister of Finance. The Bank of Korea underwrote and absorbed five billion hwan of Industrial Rehabilitation Bonds to finance the KDB. Continuing its bid to rein in inflation, the Bank of Korea set credit ceilings, a loan priority system and loan prior approvals. Interest rate policies and reserve requirements of 15 to 30 percent were widely used. In January 1954, the bank dropped reserve requirements to 15 percent to make funds more available, but then raised it back to 25 percent and ultimately dropped to as low as 10 percent by April 1957.
The Korea-US Joint Economic Committee put in place the Fiscal and Monetary Stabilization Plan in 1957. It restricted defense spending and loans and in 1958 instituted education taxes. South Korea had bumper rice harvests and grain prices dropped with surplus agricultural products from the US. The General Banking Act created in 1950 only came into effect in the late 1950s. It focused on privatizing the banking sector and creating regional banks, such as Seoul Bank or Hungop Bank, and encouraged banks to close down branches that were losing money.
When the Democratic Party took power in 1960 after the April 19 Revolution, they pursued fiscal austerity and ended up with significant financial surpluses. The preferential financing system was eliminated and the bank abolished its rediscount ceiling, although quarterly credit ceilings were reimposed. The new government centralized foreign exchange rates and steeply depreciated the hwan relative to the dollar from 500-600 hwan to the dollar to 1,300 from January to February, 1960. Citizens were required to sell their foreign currency through the Bank of Korea.
Following a year of economic stagnation, the May 16 coup led to massive bank runs. The government revised the budget three times in 1961 pursuing an expansionary approach. Money demand dropped by the third quarter and as a result commercial banks had large reserves. On November 1, the government added Monetary Stabilization Bonds with no holding limits on risk-weighted assets and credit ceilings.
The bank drew up the first Five-Year Economic Development Plan in 1961. The government took a much more hands on approach to monetary policy, stripping the Bank of Korea's Monetary Policy Committee of many of its previous powers. The government took over control of commercial banks. Meanwhile, the Korea Stock Exchange became a joint stock corporation and witnessed significant speculation which was resolved when the bank financed 38 billion hwan to fund a delivery settlement. In 1962, the hwan was replaced with the won at one-tenth its value. Through 1963, a poor harvest, declining US aid and depletion of foreign currency reserves to pay for imports steeply devalued the won.
Concerned about balance of payments and a high rate of imports, the government instituted a floating exchange rate in 1965 that depreciated the won, increasing exports 37 percent while decreasing imports. Interest rates were rationalized and increased from 20 percent to 36.5 percent. Into 1966, the bank abolished credit ceilings but raised reserve requirements. 1967 marked the reestablishment of regional private banks such as Busan Bank and Daegu Bank.
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In November 1969, the government tried to "cool off" the economy which had grown at over 10 percent annually, but had soaring prices and current account deficits, by imposing lending and rediscount ceilings.
1970s
The economy faced a slowdown with inflation and current account deficits tied to the 1973 fuel crisis. Between 1974 and 1976 it created the National Investment Fund and the Export-Import Bank of Korea to finance chemical and heavy industry. Although the country benefited from a late 1970s construction boom in the Middle East, inflation remained high. The August 3 Emergency Economic Measure in 1972 lowered banks' lending rates. The National Investment Fund Act served to finance its growing industrial base.
1980s
The annual growth rate dropped from 9 percent to 7.1 percent due to the rise in raw material costs worldwide with the 1979 energy crisis. In 1980, the won was devalued and then left to have a floating exchange rate. Between June and December, three stimulus packages were created setting a 25 percent increase in the money supply growth target, but the economy registered negative growth and 30 percent inflation.
The government implemented zero-based budgeting in 1983 and the bank tightened the money supply through the mid-1980s. The fiscal tightening brought sustained growth and reined in raw material prices. The Long-Term Plan for Capital Market Internationalization in 1981 granted foreigners an opportunity to make direct investments in the domestic securities market. Between 1982 and 1983, non-bank financial institutions such as mutual savings, an investment trust company and short-term financing groups were allowed to open up. Foreigners were allowed partial equity stakes in domestic companies after August, 1989 and banks exchange rates were liberalized a month later under pressure from the US to let the won appreciate.
The 1980s were also a major time for sponsoring technology, with a 10 tax deduction on technology research and development costs as well as the creation of the Korea Technology Development Corporation to offer venture capital.
1990s
Prices rose in the early 1990s and current account shifted to a deficit due to high oil prices worldwide. The government created the Five-Year Plan for a New Economy, a transportation tax and a tax for rural development and liberalized interest rates. Financial transactions were required to be carried out with real names. Foreign investors were allowed to invest directly in the Korea Stock Exchange, raised the ceiling on overseas portfolio investment and deregulated overseas direct investment.
The 1997 East Asian financial crisis was compounded by insolvency issues at Kia Motors. Market liquidity dried up as banks refused to lend and major Korean firms such as the Hanbo Group declared bankruptcy. The bond market was opened to foreign investors in 1998 and credit cards were deregulated. The IMF, the US and Japan extended $58 billion to South Korea in financial aid. Banks had to submit Business Normalization Plans and Korea First Bank and Seoul Bank were recapitalized by the Korea Deposit Insurance Corporation. The Bank of Korea purchased two trillion won of bonds in the Non-Performing Asset Resolution Fund to restructure financial institutions.
21st century
Deregulation of credit cards led to significant lending after 1999 and a high delinquency ratio, which kicked off a financial crisis when an accounting scandal was revealed at SK Global on March 11, 2003. The Bank of Korea launched a short-term liquidity of two trillion won in repurchase agreements to prevent the crisis from spreading. Housing prices rose steadily after 2001 due to deregulation and increased liquidity. In Seoul, prices rose 30.7 percent in 2002 alone. Foreigners owned 43.9 percent of Korean stocks.
During the 2008 financial crisis, kicked off the US Federal Reserve raising interest rates in 2006 (after a period of low interest rates globally since the early 2000s) resulting in foreclosures. The Bank of Korea injected liquidity and lowered its base rates.
In 2013 Suh Young-kyung was appointed as the first female executive in the history of the bank; she was appointed as a deputy governor.
The 2016–18 target [of price stability] is with a consumer price inflation of 2.0%.
On Apr. 17, 2024, the Bank of Korea froze its key interest rate at 2.75% per annum. The decision was made due to U.S. tariff policies. With growth forecasts likely to be lower than 1.5% this year, the Monetary Policy Committee said it is likely to cut rates once in the next three months.
In February 2026, the Bank of Korea introduced a new form of forward guidance modelled on the Federal Reserve’s “dot plot,” publishing individual policymakers’ interest rate projections to enhance transparency around its monetary policy outlook. The move was intended to provide clearer signals to markets about the future path of rates amid economic uncertainty and shifting inflation expectations.
From Wikipedia’s article on Bank of Korea, shared under CC BY-SA 4.0.5