South Korea's Central Bank Stakes Stablecoin Future on Trust, Not Tech

South Korea's central bank has drawn a sharp line in the sand against private-sector stablecoins, asserting that trust-not technology-remains the bedrock of currency stability. In the BOK report released Monday, the Bank of Korea (BOK) warned that won-pegged stablecoins pose significant depegging risks and lack the institutional credibility needed to maintain value, urging traditional banks to lead any future stablecoin initiatives. The stance contrasts with global trends, where nations like Kyrgyzstan and Hong Kong are experimenting with stablecoin frameworks to modernize cross-border payments and financial inclusion.

The BOK's report highlighted historical precedents, including the 19th-century U.S. free-banking era and Korea's own 19th-century Dangbaekjeon crisis, to underscore the dangers of private currency issuance. It cited the 2023 collapse of Silicon Valley Bank, during which USDC briefly fell to $0.88, as a cautionary tale for non-dollar stablecoins. "Currency operates not on technology, but on trust," the report stated, challenging proponents who argue blockchain alone can ensure stability. The BOK emphasized that private issuers must demonstrate "publicness" and robust reserve management to mitigate risks of systemic failure.

Meanwhile, Kyrgyzstan has taken a different approach, launching a som-pegged stablecoin on the BNB Chain and planning a central bank digital currency (CBDC) in partnership with former Binance CEO Changpeng Zhao. The KGST stablecoin aims to expand cross-border remittances and modernize financial infrastructure, with BNB potentially included in a future crypto reserve, Cointelegraph reported. This move reflects a growing trend of nations using stablecoins and CBDCs to bridge gaps in traditional financial systems.

Hong Kong, too, is navigating a complex landscape as China pauses stablecoin projects in the city. While Beijing's regulatory caution has dampened some enthusiasm, experts argue that geopolitical competition with the U.S. will drive further experimentation. Yifan He of Red Date Technology, as reported by Yahoo Finance, noted that China recognizes the strategic importance of digital assets in its rivalry with Washington, even as it tightens control over cross-border capital flows.

The BOK's skepticism contrasts with the rapid growth of crypto infrastructure. Recent Crypto VC funding rounds, including Coinbase's $375 million acquisition of on-chain investment platform Echo and Pave Bank's $39 million Series A, highlight investor confidence in the sector. These developments suggest that stablecoins and blockchain-based solutions may persist despite regulatory headwinds.

South Korea's diplomatic landscape also adds context. President Lee Jae-myung, seeking to reassert the country's global role post-martial law crisis, emphasized balancing competition with China and cooperation with the U.S. during an interview with The Straits Times. The upcoming APEC summit in Gyeongju, where U.S. President Donald Trump and Chinese President Xi Jinping will meet, could shape regional attitudes toward digital finance.

As the BOK pushes for a "bank-first" model, critics argue the central bank's traditionalist stance risks missing opportunities in a "trust-less" crypto economy. Rich O., APAC regional manager at OneKey, noted that fiat currency's value is already under pressure, as evidenced by rising gold and Bitcoin prices. "KRW stablecoins are the only opportunity for Korea to enter the global value chain," he said.