South Korea Moves to Legalize Won-Based Stablecoins to Reduce Dollar Reliance

South Korea is making significant strides in its digital currency plans by moving to legalize stablecoins tied to the Korean won. This initiative, backed by newly elected President Lee Jae Myung, aims to reduce the country’s reliance on foreign currencies, particularly the U.S. dollar, and establish South Korea as a pivotal player in Asia’s digital finance landscape.

The administration is focused on lifting the current ban on won-based stablecoins and establishing clear regulations to allow private companies to issue them safely. The objective is to bolster South Korea’s economic independence and facilitate cross-border trade using domestic digital assets. Lawmaker Min Byeong-deok, who served as President Lee’s digital assets chief during the campaign, is leading this policy effort. Earlier this month, Min introduced draft legislation to set ground rules for stablecoin issuers, including mandatory licensing and full transparency around reserves.

Min emphasized that the use of dollar stablecoins is directly linked to capital outflows, and won-based alternatives can mitigate these outflows while lowering trade-related costs. He also highlighted that stablecoins denominated in won could be particularly beneficial for sectors like e-commerce, gaming, and content creation, where South Korean companies are expanding internationally.

Twitter user bonghyeon expressed skepticism, stating that stablecoins match the demand for government bonds in that currency, and no one is buying Korean won bonds. Despite this, the private sector appears supportive. KakaoPay, one of the country’s most widely used mobile payment platforms, recently filed for patents related to stablecoin use. Analysts suggest that a won-backed stablecoin could streamline travel and tourism transactions by offering a low-cost alternative to currency exchanges and international wire transfers.

However, critics argue that stablecoins tied to the won won’t address the lack of global demand for the Korean currency. Brian Hoonjong Paik, co-founder of digital asset firm SmashFi, noted that this won’t make the won a world currency overnight. There is also a risk that speculative traders abroad could misuse these tokens, exposing the Korean financial system to new vulnerabilities. Paik further warned that government oversight could turn these stablecoins into a form of state-controlled money, essentially a backdoor central bank digital currency. He suggested that the administration consider alternatives like building a Bitcoin reserve, which he described as more transparent and less prone to manipulation.

Min countered these concerns, asserting that stablecoin issuance would remain in the hands of private firms, not the central bank. “There’s a clear distinction between a CBDC and what we’re proposing,” he said. “This isn’t about surveillance, it’s about trust and global standards.”

The legislation comes at a time when South Korea is seeking to reassert its leadership in the digital asset space. After the 2022 collapse of TerraUSD stalled Korea’s crypto push, President Lee is reviving it. His Digital Asset Basic Act would unblock crypto ETFs and create a presidential panel to guide the industry. Some critics argue that the plan lacks focus on decentralization and self-custody. Min acknowledges this concern but says the aim is to balance investor protection with the open nature of blockchain.

With global competition in digital finance intensifying, South Korea appears poised to make a significant comeback, with won-backed stablecoins at the forefront of this effort.