Bank of Korea Advocates Gradual Rollout of Won-Pegged Stablecoins

The Bank of Korea, South Korea’s central bank, has expressed a preference for a gradual and controlled rollout of won-pegged stablecoins. Deputy Governor Ryoo Sangdai has suggested that regulated commercial banks should be the primary issuers of these stablecoins initially, with a gradual expansion to the non-bank sector over time. This approach aims to ensure stability and security in the financial system as stablecoins gain traction.

During a press conference, Ryoo emphasized the importance of introducing a won-denominated stablecoin through regulated commercial banks to establish a safety net. He stated, “It would be desirable to initially allow stablecoin issuance primarily through banks, which are subject to higher levels of financial regulation, and gradually expand it to the non-banking sector.” This cautious approach is designed to mitigate potential market disruptions or consumer harm.

The central bank's concerns extend to the broader implications of stablecoin adoption. Ryoo highlighted that a stablecoin rollout could accelerate capital outflows and shift the fundamental stance on foreign exchange liberalization and the internationalization of the Korean won. Additionally, the central bank is considering the potential for financial sector restructuring, including the introduction of narrow banking.

Governor Rhee Chang-yong also expressed concerns about managing the foreign exchange of a won-based stablecoin, indicating that while the central bank does not oppose the idea, it remains cautious about the potential risks involved. The central bank is also exploring the development of a central bank digital currency (CBDC) as a countermeasure to stablecoins. A CBDC test, involving various government agencies, is currently underway and is set to conclude on June 30.

The central bank's approach is aimed at mitigating risks while allowing for innovation. By starting with regulated banks, the Bank of Korea can ensure that stablecoins are issued under stringent guidelines, reducing the likelihood of financial instability. This phased approach also allows for adjustments based on market feedback and technological advancements, ensuring a smoother transition to a stablecoin-based financial ecosystem.

The gradual rollout of stablecoins in South Korea is part of a broader trend towards digital currencies and blockchain technologies. As governments around the world begin to establish clear guidelines for stablecoins, South Korea's approach serves as a model for balancing innovation with regulatory oversight. This cautious yet forward-thinking strategy is likely to shape the future of digital payments in the region, benefiting both financial institutions and tech companies alike.