Bank of Korea Governor Warns of Risks from Stablecoins Issued by Non-Bank Companies

The Governor of the Bank of Korea, Lee Chang-yong, has issued a warning about the potential risks associated with the issuance of stablecoins by non-bank companies. Speaking at a press event, he cautioned that an excessive number of stablecoins could lead to significant problems for South Korea’s financial system. He compared the situation to the 19th century when individual companies printed money, leading to economic chaos.

South Korea is currently pushing for the adoption of won-pegged stablecoins as part of President Lee Jae Myung's plan to promote new digital payment methods. This initiative has garnered interest from various banks and private companies, which have already trademarked stablecoin names and logos, indicating a swift readiness to move forward. However, Governor Lee emphasized the need for careful planning. He noted that if numerous non-bank companies issue stablecoins, it would be challenging for the Bank of Korea to control the country's money supply. This could make it difficult to set reasonable interest rates or maintain economic equilibrium, potentially requiring the central bank to intervene later to regain control.

Governor Lee also highlighted the potential impact of multiple won-pegged stablecoins on South Korea's foreign exchange policy. He suggested that allowing private companies to run payment services could affect banks' revenue streams. Given these risks, he stressed that this decision should not be made solely by the central bank but rather through the collaborative efforts of the government, the central bank, and other relevant ministries. He underscored the importance of having the right personnel in the government to initiate this process.

Earlier this year, the Bank of Korea announced its intention to play a larger role in establishing stablecoin regulations. This move came after recognizing that stablecoins differ from regular cryptocurrencies like Bitcoin, as they are pegged to reliable currencies such as the won or the dollar. This makes them more akin to traditional money with faster transactions and convenient online use. In March, lawmaker Min Byeong-deok proposed a new bill to set clear rules for won-pegged stablecoins, indicating that lawmakers are giving this issue serious consideration to safeguard the financial system.

South Korea faces a significant challenge in balancing the experimentation with new technology and ensuring the security of its monetary system. Governor Lee's warning serves as a reminder that new financial instruments like stablecoins require clear regulations and effective collaboration. When managed properly, stablecoins could facilitate seamless and quick money transfers for individuals and businesses. However, without sufficient rules and planning, they could reintroduce old financial issues that South Korea has worked hard to eliminate.