No sooner had I finished speaking than stinging gazes began shooting toward me.
Damn it... Should I have just kept my mouth shut?
Apparently, I should have. The head of the domestic equities office, who was all but certain the Bank of Korea would raise interest rates, glared at me with contempt, and even Director Oh clenched his molars.
Only one person, the division head—the most powerful man in the room—smiled as if he found it interesting and asked me,
“Domestic interest rates won’t rise the way America’s did? And the same goes for other countries’ rates?”
“...Yes. That’s correct.”
“That’s an awfully hard statement to believe from someone in finance... What’s your basis for thinking that?”
For a very brief moment, my breath caught in my throat.
In truth, it was a statement that went beyond incompetence and straight into ignorance. Wasn’t this something anyone would know after taking even one macroeconomics class in school?
The global benchmark rate is set by the United States, and each country must set its own rates higher than that according to its economic circumstances.
As an exception, key currency nations can play a few tricks, but for Korea, a non-key currency nation, the common sense of the financial order that had ruled for nearly a hundred years was that its rate absolutely, without exception, had to be higher than America’s.
But that did not happen.
The absurd dream I had seen three times—no, the future I had now decided to believe was fate—was an era of the New Normal, when that hundred-year-old financial order had begun to shake.
An era of absurdity, in which Korea, a non-key currency nation, had lower interest rates than the United States, yet its economy held up better than expected. An era of absurdity, in which the United States, the leader of neoliberalism, suddenly waged a tariff war against its allies...
I had no idea how much of that ridiculous dream would turn out to be true, but when it came to predicting the SB incident, I could not simply ignore it.
And as I used the future I had seen in the dream as a signpost and investigated the data, I ended up realizing... that the ridiculous dream was actually more persuasive.
“Why are you silent? I asked what your basis is for thinking that.”
As I was organizing my thoughts, the division head pressed me.
“The fact that our benchmark rate should be higher than America’s is basic financial common sense that even a freshman in economics knows. So why are you saying such a thing?”
“...The United States released far too much money during COVID. That is the biggest reason.”
“What?”
“There are currently too many dollars in circulation. Because of that, even if the U.S. benchmark rate is higher than ours, it won’t lead to a surge in the exchange rate.”
No sooner had I finished speaking than Director Kim Myeongcheol of the domestic team snapped back.
“Nonsense. The moment the Fed announced its giant step, the exchange rate broke past 1,250 won. And you’re saying the BOK won’t raise rates? Are you suggesting we let it go to 2,000 won?”
“It’s simply panic selling. But our foreign exchange reserves are quite solid. The BOK will easily put out that much of a fire.”
“I’m sorry, but I don’t think Governor Shin is as much of a fool as you are. What good does it do to put out an urgent fire? If U.S. rates are higher than Korea’s, that’s a fire that won’t go out. Then should we pour in fiscal resources until our foreign exchange reserves hit bottom? Absolutely not. We might last a month or two, but in the end, we’ll have to raise our rates too. That’s why I’m saying we need to take preemptive measures like selling stocks and bonds!”
“I’ll say it again... The United States has released too many dollars for that.”
“What?!”
I hurriedly picked up one of the reports.
“Director. This is the COVID performance report by country released yesterday by the National Assembly Research Service. Please review it just once.”
The division head replied with a face devoid of laughter.
“I’ll review it after the meeting. You present what’s in it yourself.”
“...Yes. According to the Research Service, the fiscal spending released by the United States during COVID was approximately 2.8 trillion dollars, which comes to 3,500 trillion won in Korean currency. However, Korea’s fiscal support during the same period was only 200 trillion won.”
Korea had defended itself against COVID far better than expected.
In the speed of infection spread, in the number of deaths... even in fiscal expenditure.
And no wonder. If you tested positive, human rights or whatever else aside, your entire movement history was disclosed wholesale, so everyone had no choice but to be careful.
Was that the secret? Thanks to that, Korea’s defense of fiscal spending was among the best in the world.
As quarantine dragged on, anti-government protests demanding money from the government never ceased in Europe.
But Korea did not see a single large-scale protest, and even the occasional protests that did happen were “good” protests where people wore masks and strictly observed social distancing.
Thanks to that, we blocked COVID at a very low cost.
“...In truth, the one in a hurry is not us, but the United States.”
As a result, we had more cards in our hand in the post-COVID era.
While the U.S. CPI was hitting 9%, Korea’s CPI was around 5%.
Perhaps conscious of this, the Bank of Korea was continuing to refrain from making statements. Since last week’s giant shock from the United States, many reporters had asked Governor Shin about the possibility of a Korean rate hike.
But Governor Shin had only repeated the same words of concern he always did, and had not shown the market any clear signal that he intended to raise rates.
“...Accordingly, predicting a rate hike and taking preemptive action in the market would be reckless. Rather, we should increase our purchases of short- and mid-term government bonds and public bonds. Looking at the various indicators together, those two are the safest assets at the present moment.”
When my long explanation came to an end, the conference room fell so silent you could hear a pin drop.
Those quick on the uptake had already picked up their phones and were reviewing the materials released by the National Assembly Research Service.
“Director, may I say something as well?”
As the silence stretched on, Director Oh carefully raised his hand.
“Of course, I don’t agree with everything Assistant Manager Lee thinks... but to be honest, I also had concerns about whether the BOK would raise rates.”
“And why is that?”
“If he truly intended to raise them, Governor Shin would already have given a signal for a hike. To soften the market shock. But after America’s giant step, hasn’t he said nothing but textbook remarks?”
“Hmm...”
“The COVID performance report by country released by the Research Service... This is not something we can ignore. With the U.S. CPI hitting 9%, the fact that ours is below 5% clearly means there is some issue with the amount of currency issued. Conversely, Korea’s real estate situation is in an extremely serious state.”
“Mm...”
“Prices are at a controllable level, yet the real estate situation is serious...? I, too, believe there is a strong possibility that the BOK will freeze rates.”
Heaven was helping me.
With Director Oh’s supporting fire, the division head’s expression gradually began to disarm.
“All right. Those are reasonable opinions. But Director Oh.”
However, his face turned fierce again at the very end.
“If you were told that buying U.S. bonds would give you a higher yield than Vietnamese bonds... would you buy Vietnamese bonds?”
“That’s...”
“I know. I know that the current global economy can’t be explained by theory alone. But even so, I think everything will eventually converge on the United States. Maybe not in the short term, but if U.S. rates stay high, everyone will eventually buy safe U.S. assets.”
“...”
“Two or three months at most. If America does that, Europe’s rates will rise too. Among the key currency nations, will our rates be able to survive? In that case, wouldn’t selling government bonds and public bonds and holding cash be the safest asset?”
“Th-that’s true.”
“I suppose it’s because I’ve gotten older. I keep making conservative judgments.”
“...”
“I’m not saying you’re wrong. But in the thirty years I’ve worked, there has never been a single case like this. From my perspective, right now...”
At that moment, the division head’s chief secretary, who had been standing by in the back, suddenly approached him.
He asked for their understanding, then whispered something in the division head’s ear.
Whatever he heard, the division head—who had looked like a stone Buddha from beginning to end—suddenly asked back in an excited voice.
“Wh-what? The Bank of England and the ECB are freezing rates?!”
*
Four hours earlier, London, England.
Officials from the European Central Bank and the Bank of England held a secret meeting.
The reason they had gathered in England close to midnight was not because of Europe’s time difference. It was because the impact of America’s high interest rates, galloping like a mad horse, seemed poised to spread across all of Europe.
“My... It seems we couldn’t shake off all the reporters after all.”
The Governor of the Bank of England, the host, opened his mouth heavily.
“It seems a few sharp-eyed outlets have already caught on to our meeting.”
“Well, that’s fine. There’s no one who doesn’t know Europe is in crisis because of the U.S. rate hike, is there?”
“In any case, once we announce rates tomorrow, this meeting will inevitably come to light. Let us just speak comfortably.”
The fact that they had gathered at dawn, even going so far as to shake off reporters, meant that there was an issue that was just that serious.
Today, not only ECB officials but also the central bank governors of various European countries had gathered. It was a meeting that foreshadowed a debate to the bitter end.
“Then let us begin the meeting right away. As you know, the impact of America’s high interest rates is washing over Europe. Last month, as a preemptive measure, we raised our rate to 3.25%, but the Fed’s giant step caught up with us in an instant.”
“...”
“Concerns about exchange rates are already beginning to emerge... What is the ECB’s position?”
No one could open their mouth.
Europe, which had released the most fiscal spending after the United States during COVID, was currently being stretched to the breaking point.
With their fiscal deficits relative to GDP roughly twice that of Korea’s, they had no more room to take on debt, nor any leisure to print more money. But they had even less capacity to raise interest rates.
“If you do not mind, I would like to speak first on behalf of the Bundesbank.”
As everyone expected, Germany’s central bank was the first to speak.
“...It is impossible. We no longer have the capacity to keep up with America’s rate hikes.”
It was not an exaggeration. Germany was truly at the edge of a cliff.
Having recorded negative growth for two consecutive years during COVID, they were projected to grow in the 0% range even in the post-COVID era. At this rate, they were genuinely on the verge of running to the IMF...
High U.S. interest rates, which would inevitably contract the economy, were no exaggeration to say were more frightening than the American Allied forces that landed in Normandy.
“And is it only Germany? If the high-rate trend continues, eventually every industry in Europe will collapse. From now on, our ECB rate must be lower than America’s.”
“Then why not put up some cultural assets as collateral and go to the IMF?”
“Wh-what did you say?”
“No, you demanded that of us, so why are you now asking us to consider your own country’s position?”
The one speaking this way was Greece, which had suffered great humiliation under Merkel and had only barely succeeded in improving its economic constitution.
“We in Greece are not particularly afraid of U.S. rate hikes. If global tourism demand rises, we actually expect a boom on our end.”
“Look here!”
At that moment, France stepped in.
“Let’s stop this. The impact of America’s high interest rates is a common challenge for Europe. If the German economy falls into recession, do you really think Greek tourism will be safe?”
“Oh, honestly...”
“The same applies to France as well. Last month, the IMF projected our economic growth rate at under 1%. With an economic slowdown of this degree, no part of Europe will be unharmed.”
Greece fell silent with a groan.
And no wonder, since the majority of tourists who came to their country for vacations were people from Western Europe. If their household finances grew strained, it would naturally be fatal to Greece’s own industries as well.
After a round of bickering came to an end, the head of the European bank, the President of the ECB, opened his mouth.
“Governor of the Bank of England... The reason we, who parted ways several years ago, have come to you like this is that our conclusion has, in truth, already more or less come together.”
“Yes.”
“We can no longer raise rates higher than America’s... That is our conclusion. In fact, once we confirm the positions of the United Kingdom and the EU, we intend to announce the rate decision to the press even at dawn today. What is the United Kingdom’s position?”
The Governor of the Bank of England let out a long sigh.
0.1%, 0.9%... Those were the United Kingdom’s economic growth rates over the past two years.
After a brief silence, the Governor of the Bank of England replied.
“...The same. We do not have the economic strength to withstand high interest rates.”