Bank of Korea to Discuss Won-Based Stablecoins with Major Banks

Bank of Korea Governor Rhee Chang-yong is set to attend a pivotal financial meeting with the heads of the country’s major commercial banks on June 23 in Seoul. The meeting, hosted at the Bank of Korea headquarters, will center around the rising political momentum surrounding the issuance of won-based stablecoins. This topic has gained considerable attention following the election of South Korea's new president, Lee Jae-myung, who has voiced support for won-based stablecoins as a means to mitigate capital flight.

The political environment has evolved with the introduction of the "Basic Digital Asset Act" by Democratic Party lawmaker Min Byung-deok. This act includes provisions to permit stablecoins pegged to the Korean won and reduce capital requirements for issuers, potentially opening the market for fintech firms. Lee Jae-myung, known for his advocacy of cryptocurrencies, has pledged to legalize spot Bitcoin ETFs and introduce a regulated stablecoin market to prevent capital outflows.

The central bank, however, has expressed caution regarding the issuance of stablecoins, particularly those issued by non-bank entities. The Bank of Korea argues that such models could undermine monetary policy and spark financial instability during crises. Deputy Governor Lee Jong-ryeol has confirmed that the bank is exploring blockchain-linked deposit tokens as a more limited alternative. He has also voiced concerns over the proliferation of foreign stablecoins, describing them as the most concerning part of Korea's digital asset landscape.

The meeting on June 23 is expected to address these concerns and explore potential solutions. Rhee Chang-yong and the bank presidents will likely discuss the implications of stablecoins on monetary policy and financial stability. The central bank's cautious approach reflects its commitment to maintaining monetary sovereignty and preventing potential risks associated with digital assets. The gathering will also provide an opportunity for the bank to share its views on monetary policy and financial market issues, ensuring a coordinated approach to regulating digital assets in South Korea.

Lee Chang-yong is scheduled to address the bankers’ dinner at the Seoul Bankers’ Association on June 23. This event is a high-level gathering among key industry players, focusing on the future of digital currencies. The meeting will concentrate on the Korean won stablecoin, pegged to the national currency. This discussion is crucial as it aligns with South Korea’s policy momentum towards legalizing won-backed stablecoins.

The event's outcome could influence trading volumes and liquidity shifts, especially within South Korea's domestic markets. This marks a significant juncture in digital asset policy discussions in the region. The proposals and discussions are expected to direct changes in how financial institutions approach digital asset stability and regulatory frameworks, impacting both local and international markets. Lee Jae-myung, President of South Korea, noted, "Won-backed stablecoins may help prevent the outflow of capital to USD-denominated coins."

If implemented, these regulatory conversations will adjust the market dynamics, particularly against USD-pegged stablecoins that currently dominate. The focus on a KRW-backed stablecoin positions South Korea competitively in the digital finance landscape. Historical trends suggest regulatory clarity often leads to increased on-chain settlement and exchange activities. Prior CBDC trial announcements influenced domestic activity, setting a precedent for future stablecoin adoption and its market implications.