South Korea's Central Bank Warns of Won-Based Stablecoin Risks

The Central Bank of Korea (BOK) has expressed significant concerns regarding the potential launch of stablecoin assets pegged to the Korean won. This caution comes amidst the new leadership's support for digital finance initiatives, which include the introduction of a won-based stablecoin. The central bank's apprehension stems from the potential unintended consequences of such a move.

Governor Lee Chang-yong of the Bank of Korea highlighted these concerns during a press briefing. He pointed out that the creation of won-based stablecoins could inadvertently increase the use of US dollar stablecoins. This is because users might find it easier to switch between won and dollar stablecoins, leading to a greater reliance on the US dollar in digital transactions. Such a trend would complicate the central bank's ability to monitor and control foreign exchange movements, posing a challenge to its regulatory oversight.

Beyond currency concerns, the central bank is also worried about the impact of stablecoins on South Korea's banking industry. Governor Lee noted that if more people adopt stablecoins for payments and settlements, traditional banks could lose their role in these areas. This shift could affect the banks' profits and overall stability, potentially disrupting the financial ecosystem.

Despite these concerns, the government remains supportive of the idea of a won-backed stablecoin. President Lee Jae Myung, who recently took office, aims to prevent capital flight and modernize the country's financial system for the digital age. However, the central bank's skepticism has led to calls for a more cautious approach. Governor Lee clarified that the Bank of Korea is not entirely against the idea of stablecoins but emphasizes the need for clear rules and safety measures.

To address these concerns, the Ministry of Economy and Finance and the Financial Services Commission will collaborate with the central bank to discuss stablecoin policies. Their focus will be on ensuring that stablecoins can be used safely and do not harm the local economy or financial institutions. This collaborative effort aims to strike a balance between embracing digital finance innovations and maintaining financial stability.