Bank of Korea Considers Won-Backed Stablecoin for Financial Stability

The Bank of Korea (BOK) is carefully considering the introduction of a won-backed stablecoin, a digital currency pegged to the value of the Korean won. This exploration comes as the central bank prioritizes financial stability over short-term economic stimulus. Governor Rhee Chang-yong has emphasized that any move toward a central bank digital currency (CBDC) or stablecoin must be grounded in financial stability, warning against blanket cash assistance as an economic strategy due to potential market distortions and increased fiscal risks.

Rhee Chang-yong has stated that the government should focus on targeted assistance for the self-employed and small businesses. He also noted that while he is not against the issuance of won-based stablecoins, the central bank must consider the broader implications for both non-bank and bank business models. The BOK is particularly interested in scenarios where private stablecoins could pose systemic risks, especially given the rising housing prices in the Seoul metropolitan area, which have contributed to a higher perceived inflation rate despite generally favorable income conditions.

South Korea is a significant hub for cryptocurrency trading, maintaining strict oversight to mitigate risks such as capital outflows, financial fraud, and market volatility. A state-backed stablecoin would enable the government to exert more control over digital transactions while competing with private alternatives like USDT and USDC. Last week, during President Lee Jae-myung’s early tenure, the ruling Democratic Party proposed the Digital Asset Basic Act, which aims to enable local companies to issue won-backed stablecoins. This proposed law seeks to reduce reliance on US dollar-pegged stablecoins, which currently account for a substantial portion of domestic trading.

The BOK is actively participating in cross-border CBDC pilots with regional partners, including the Bank for International Settlements (BIS). Additionally, South Korea’s Ministry of Science has increased support for blockchain-based projects, indicating a strong institutional interest in digital innovation. However, there are concerns among regulators about unregulated stablecoins potentially undermining sovereign monetary policy.

The Bank of Korea's exploration of a won stablecoin is part of a broader effort to modernize its financial infrastructure and drive economic growth. The bank is committed to conducting research and taking concrete actions to identify and nurture new engines of economic growth while addressing structural economic problems. The bank's cautious approach to the development of a won stablecoin reflects its commitment to price stability and its awareness of the potential risks and challenges associated with digital currencies.