By Cynthia Kim
SEOUL, April 21 (Reuters) - As Shin Hyun Song takes the helm of the Bank of Korea this week, the seasoned economist is taking on an ambitious task: making the won a global currency without jolting capital flows, just as Asia's fourth-largest economy enters a turbulent phase.
Shin, 66, is best known internationally for warning of the 2008 global financial crisis well before it hit. Now he is proposing to "rebuild a framework" that could unwind a protective fortress around the won - a system
he helped design himself when he last served in Seoul as a presidential adviser in 2010.
"Even China is struggling to internationalise the yuan. So realistically it would be a challenging goal," said Chang Jaechul, an economist at Pinnacle Economic Research Institute.
"Having said that, one big plus Shin brings into the BOK would be his wealth of networks across the world."
The timing, however, could hardly be more challenging. The won is languishing at a 17-year low of around 1,500 to the dollar, oil prices are feeding inflationary pressure, and demographic decline is steadily hollowing out the labour force.
Still, Shin is not backing away.
"The internationalisation of the Korean won is an important task in building a currency infrastructure befitting the status of our economy," Shin said in his inauguration speech.
Working alongside the government, Shin said the central bank will push for round-the-clock trading in the foreign exchange market and build an offshore won settlement system - moves meant to make the currency easier to use beyond Korea's borders.
The plan also aligns with President Lee Jae Myung's goal to reform South Korean markets and secure a long-coveted upgrade to MSCI's developed-market index.
But it may also require easing restrictions on offshore won trading between non-residents - controls designed to help prevent speculative swings.
GLOBAL NETWORK
To pull that off, Shin will be leaning heavily on his global standing.
Having spent over four decades overseas since 1968, his academic career took him through Oxford and Princeton, followed by more than a decade at the Bank for International Settlements, the Basel-based institution dubbed the central bank for central banks.
In this role, Shin quietly advised an elite circle of central bankers on financial stability and systemic risk.
"I've known Hyun‑song for many years and worked closely with him across the BIS and other international settings," said Governor of the Reserve Bank of Australia Michele Bullock, who described Shin as having a "calm, quiet authority that carries real weight in discussions."
'CELEBRITY ECONOMIST'
Sohn Byungdoo, former Chairman of the Korea Exchange, recalls encountering Shin in the late 1990s when he was a doctoral student at Brown University.
"At that time, Korean scholars had made notable contributions to microeconomics and theoretical fields, but it was quite rare to see an Asian economist commanding the attention of the global macroeconomics community," said Sohn.
"To me, he was something of a celebrity in the academic world," said Sohn, who went on to work with Shin building capital flow control rules.
For global investors, Shin is perhaps best known for a striking metaphor he used to explain systemic risk that would eventually trigger the global financial crisis. Borrowing from London's wobbly Millennium Bridge, he argued that the bridge did not sway because of one reckless pedestrian. Instead, it was the rational, synchronised behaviour of many people trying to steady themselves that amplified the instability.
At home, Shin's lengthy stint abroad has however attracted criticism, including for the significant acquisition of overseas assets, which he's defended saying it was a natural outcome of living overseas.
Stephen Morris, a friend and a Massachusetts Institute of Technology economist best known for introducing the influential "Global Games theory" in 1998, said Shin always "identified himself as Korean when we were in Princeton together."
Morris remembers Shin as someone who was proud of his culture, who often took him to a Korean restaurant in Princeton called Nassau Sushi.
"He was simultaneously integrated with the Korean community, I mean in this case the Korean academics, but also with the international society and the international economists," Morris recalled from watching Shin at conferences.
LIKE FATHER LIKE SON
When Shin returned to Seoul from Princeton in late 2009 at the request of former President Lee Myung-bak, the country was still reeling from the global financial crisis.
Sohn said Shin "played a pivotal role" restoring calm, helping South Korea earn recognition from the International Monetary Fund as a "model for macro-prudential policy."
Now, he returns - to the same institution where his late father once worked. Shin Byung-hwa helped tally the nation's first post-war foreign currency reserves of less than $207 million in 1957 - a figure that has since grown some 2,000-fold to become the world's 12th largest as of March this year.
The irony is unmistakable: the architect of Korea's financial fortress is now the man testing how much of it can safely be brought down.
(Reporting by Cynthia KimEditing by Ed Davies and Shri Navaratnam)
