The Rough and Tumble Education of a Central Banker

It’s been a steep learning curve for Rhee Chang-yong. The central bank he leads, in one of the world’s bellwether economies, was miles ahead of the Federal Reserve in beginning to tackle inflation. And still the job keeps getting harder.

In the six months since he became Bank of Korea governor, Rhee has wrestled with rapid price increases, executed the only two half-point interest-rate hikes in the agency’s history and strived to be more open about the bank’s plans. The latter is tricky at the best of times, and a herculean task during periods of great strain in world markets. On paper, he came to the gig superbly prepared: For eight years, he ran the Asia-Pacific department of the International Monetary Fund and was chief economist at the Asian Development Bank.

The challenges Rhee faces encapsulate the trials of most central bankers in 2022. He’s been forced to contend with an epic rally in the dollar that’s pounded the Korean won, pushed the bank to intervene in markets and given Rhee pause about how much guidance to provide to investors. Who could blame him for expecting a plague of locusts next? “I have to confess that it’s much harder than just writing a paper,” he told the Peterson Institute for International Economics in Washington this month.

Despite his recent appointment, Rhee is no neophyte when it comes to the trade-offs officials typically confront. There is the perennial question of how fast you tighten policy lest you choke the expansion. To that add currency-market ructions, which ambushed Rhee’s laudable efforts to inject some candor into the bank’s historically opaque workings. The won tumbled 9% in the third quarter alone and is down about 17% this year, a decline in Asia second only to the battered Japanese yen.

Rhee has little choice but to plow ahead. Like many officials in emerging markets, and quite a few in advanced economies, Rhee isn’t master of his own destiny. The common thread is the dominance of the greenback, a product of the Fed’s clout and how America’s response to skyrocketing inflation is driving choices in places popularly thought to be more under the sway of Chinese leader Xi Jinping than Fed Chair Jerome Powell.

To hear it from Rhee, the intent isn’t to reverse the slide in the local currency against the dollar or even about holding a line on trading screens. It’s about cushioning the won’s decline and preventing the tumble from worsening inflation. That’s a distinction often hard to manage in practice: Koreans have bitter memories of the hardships encountered during the Asian financial crisis of the late 1990s when the currency’s implosion led to a deep recession and the nation required a humiliating rescue from the IMF.