The Bank of Korea was established on June 12, 1950, following the passage of the Bank of Korea Act on May 5 of that year, to serve as the central bank of Korea with the purposes of stabilizing the value of the national currency, promoting the soundness of the banking and credit systems, and developing the Korean economy. This took place against a backdrop of hyperinflation and economic turmoil in the years immediately after Korea’s liberation from Japan. The Bank began initially as a government- invested organization with paid-in capital of 1.5 billion won, but was later reorganized in 1962 as a non-capital special organization in accordance with the first revision of the Bank of Korea Act. At the time of its enactment, the Bank of Korea Act specified the Bank’s role as the central bank in devising and implementing monetary, credit and foreign xchange policies. In 1962, however, the Act was revised in a direction that enabled the Bank to actively support the government-led economic growth initiatives. Its top decision-making body, the

The Monetary Policy Board was accordingly renamed the Monetary Board of Korea, while the number of its government-nominated members increased significantly. In addition, most of its functions related to the formulation of foreign exchange policy and the management of the foreign exchange reserves were transferred to the government.

From the late 1980s, in line with the promotion of financial liberalization, there were active discussions regarding the expansion of the central bank’s role in maintaining price stability as well as its independence, leading to amendments to the Bank of Korea Act in 1997 and 2003. The reforms in the 1997 amendment included the introduction of an inflation targeting regime and the restoration of the name Monetary Policy Board, while all Board members were given the position of standing member. In addition, the position of Board chair was transferred from the Minister of Finance and Economy to the Governor of the Bank. This change served to enhance the neutrality and autonomy of the Bank. However, the authority to supervise banks moved from the Bank to a newly-established joint financial supervisory institution. The 2003 revision of the Act meanwhile stipulated the operation of inflation targeting from a medium-term perspective, while the Bank was delegated the additional functions of oversight and monitoring of the payment and settlement systems. In addition, the Senior Deputy Governor of the Bank was given the position of ex-officio member of the Monetary Policy Board, and the portion of the budget subject to prior government approval was narrowed from encompassing all expenditures to covering only expenditures classified as salary.

The Global Financial Crisis provided an impetus for accelerated discussions of legislative amendments to strengthen the Bank’s function of financial stabilization, so as to establish conditions to facilitate the prevention of financial instability and the implementation 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 purpose of the Bank as the promotion of price stability through the formulation and implementation 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 revision of the Act in 2012, it was then stipulated that candidates for the post of Governor of the Bank must pass through a National Assembly confirmation hearing process prior to appointment. In addition, the Act was revised in 2018 for the purpose of introducing a system of staggered terms196), which ensures service terms of varying lengths for members of the Monetary Policy Board by adjusting the term lengths of some members, and adding local governments to the list of entities that are subject to the collection of data for the Bank’s statistics and economic survey activities.