South Korea’s Democratic Party Leader Proposes Won-Based Stablecoin to Halt 56.8 Trillion Won Outflows

South Korea’s Democratic Party leader Lee Jae-myung has proposed the creation of a stablecoin tied to the Korean won to prevent capital outflows and strengthen national financial sovereignty. Speaking during a recent policy discussion, Lee argued that a won-based stablecoin would allow South Korea to retain wealth domestically while reducing reliance on foreign-issued digital assets like USDt (USDT) and USDC (USDC).

Currently, South Korean law prohibits the issuance of domestic stablecoins, forcing local exchanges to rely on US dollar-based alternatives. Between January and March, crypto exchanges in the country recorded 56.8 trillion won in asset outflows, nearly half of which were linked to foreign stablecoins. “We need to establish a won-backed stablecoin market to prevent national wealth from leaking overseas,” Lee reportedly said.

The proposal is part of Lee’s broader digital asset strategy, which includes legalizing spot cryptocurrency exchange-traded funds (ETFs). Both Lee and rival Kim Moon-soo of the People Power Party have pledged to support the introduction of spot crypto ETFs. Lee’s campaign also calls for the National Pension Fund and other institutional players to be allowed to invest in cryptocurrencies once price stability criteria are met. To facilitate this, he proposes an integrated monitoring system and lower transaction fees, making crypto more accessible under government oversight.

However, the stablecoin proposal has sparked concern among economists. Shin Bo-sung, a senior Korea Capital Market Institute researcher, warned that stablecoins could inflate the money supply and shift monetary control to private issuers. “We must not overlook the economic principles behind them. Stablecoins are essentially another form of banking, creating money out of nothing,” Shin said.

On May 13, South Korea’s Democratic Party launched a Digital Asset Committee focused on developing cryptocurrency policies and promoting industry growth. The committee, which held its inaugural meeting at the National Assembly Members’ Hall in Seoul, highlighted the importance of resolving regulatory uncertainty and addressing burning issues like stablecoin regulation. The new committee joins similar organizations in South Korea, including the Virtual Asset Committee launched in late 2024 and another public-private crypto task force introduced in 2022, both initiated by the Financial Services Commission (FSC).

The Democratic Party is also set to introduce the Digital Asset Basic Act. The bill would establish a legal framework for cryptocurrencies and stablecoins, requiring issuers to hold at least 50 billion won in reserves and gain approval from the FSC. The introduction of a won-based stablecoin could have significant implications for the South Korean economy. It could facilitate faster and cheaper cross-border transactions, reduce reliance on traditional banking systems, and provide a more efficient means of conducting financial transactions. Additionally, it could attract more investment in the cryptocurrency sector, further boosting economic growth.

However, the proposal also raises several challenges and considerations. Regulatory frameworks for cryptocurrencies in South Korea are still evolving, and the introduction of a stablecoin would require careful oversight to ensure compliance with financial regulations and to prevent misuse. Furthermore, the stability of the won itself could be affected by external economic factors, which could in turn impact the value of the stablecoin. Lee's proposal reflects a broader trend among presidential candidates in South Korea to embrace digital assets as a means of driving economic innovation and growth. As the election approaches, it remains to be seen how other candidates will respond to this proposal and whether they will introduce their own cryptocurrency policies. The outcome of the election could have a significant impact on the future of digital assets in South Korea and their role in the country's economic development.