Bank of Korea Cautious on Won-Based Stablecoin Amid Foreign Exchange Concerns

The Governor of the Bank of Korea, Lee Chang-yong, has expressed a cautious stance on the introduction of a Korean won-based stablecoin. During the "Price Stability Status Review Press Briefing," Lee Chang-yong stated that while he is not opposed to the idea, a comprehensive consideration of the stability of the foreign exchange market and structural changes in the banking industry is necessary. He raised concerns that issuing a Korean won stablecoin, due to its ease of exchange with USD stablecoins, might lead to increased demand for USD stablecoins, causing challenges in foreign exchange management. Additionally, the Bank of Korea is concerned that the activation of stablecoins could shift existing payment and settlement functions from the banking sector to non-banking sectors. Lee Chang-yong emphasized that this would have a significant impact on the revenue structure and business models of banks, necessitating a holistic approach. He also stated that since the policy involves multiple departments, the Bank of Korea will formally engage in policy coordination with the Ministry of Economy and Finance, the Financial Services Commission, and others to comprehensively assess the pros and cons of stablecoins and implement thorough countermeasures.

The Bank of Korea's cautious approach to stablecoins is part of a broader strategy to incorporate crypto assets into the national financial governance system. The central bank is working with relevant institutions to develop a unified regulatory framework to prevent stablecoins from being used to circumvent foreign exchange controls. This shift in regulatory attitude comes as South Korea's ruling Democratic Party has proposed a draft Digital Asset Basic Law. This law aims to allow qualified local companies to issue stablecoins anchored to the Korean won, potentially reducing dependence on US dollar stablecoins and enhancing financial sovereignty. The proposed law stipulates that companies with a registered capital of not less than 500 million won and full reserves can legally apply to issue stablecoins. This move is part of a broader strategy to incorporate crypto assets into the national financial governance system, alongside the promotion of BTC/ETH spot ETFs and the allocation of crypto assets to the national pension fund. The Bank of Korea's participation in the BIS-led Agorá project, which focuses on CBDC and tokenized bank deposit pilot programs, further underscores its evolving strategic understanding of new financial infrastructure.

However, the path to implementation is fraught with challenges. The central bank's concerns about monetary policy regulation and the need for coordination with other regulatory bodies, such as the Financial Services Commission, highlight the complexities involved. Additionally, the potential for inflated liquidity and systemic risks, as evidenced by the Kimchi Premium, adds another layer of caution. The regulatory framework must also address issues such as foreign exchange review and anti-money laundering prevention and control. Despite these challenges, the legalization of stablecoins in South Korea is seen as a significant step towards establishing the region as a key player in the global crypto industry. The large retail user base and policy support from the new government provide a strong foundation for innovation in the crypto space. If the proposed measures, including the release of ETFs and the entry of pension funds into the market, are successfully implemented, South Korea could become the first economy in Asia to fully integrate crypto assets into its national financial backbone. This would not only attract more domestic and foreign companies to the region but also position South Korea as a core node in the Asian crypto industry.

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