The recent address from the new Governor of the Bank of Korea (BOK) has stirred excitement and speculation within the financial community. With a strong focus on central bank digital currencies (CBDCs) and bank-issued deposit tokens, he avoided discussions on stablecoins, even as South Korea seeks to build a related regulatory framework.

Governor’s Vision for CBDCs

In an unveiling speech, Shin Hyun-song, the newly appointed governor of the BOK, outlined his vision for the central bank in an evolving digi-financial landscape. His experience as the former head of the Monetary and Economic Department at the Bank for International Settlements (BIS) brings a wealth of knowledge.

Shin emphasized that the BOK aims to maintain confidence in the currency while adapting to rapid financial innovations. He pointed out that enhancing the international use of the won is critical, with CBDCs and deposit tokens viewed as vital tools for this purpose.

Through our ongoing initiatives, we aim to elevate the functionality of CBDCs and deposit tokens while seeking global partnerships to improve the prominence of the won in digital transactions.

Yet, he reminded the audience that any innovations must prioritize the nation’s financial stability. Strong frameworks and careful planning will be key to navigating these changes smoothly.

Interestingly, the absence of mentions regarding stablecoins in his address may suggest a potential shift in focus away from them, especially during this transitional period of his leadership.

Previously, Shin has acknowledged the role of won-denominated stablecoins in the currency ecosystem, indicating that they could harmoniously align with CBDCs and deposit tokens.

“I foresee a future where central bank digital currencies can synergize with stablecoins, enhancing their overall functions,” he stated earlier this month.

Regulatory Challenges for Stablecoins

It’s important to acknowledge that stablecoins have been a focal point in South Korea’s digital currency discussions. Over the past year, the regulatory environment has become unresolved, largely due to ongoing debates about the Virtual Asset User Protection Act.

This critical legislation aims to delineate the roles and responsibilities concerning the issuance of won-pegged stablecoins. However, varying opinions between the BOK and the Financial Services Commission (FSC) have stalled progress.

While the BOK advocates for a model where banks hold a majority stake in any stablecoin issuer, the FSC has concerns that this could stifle innovation from technology firms looking to enter the market.

Recently, lawmakers have pressed the government to expedite stablecoin legislation, emphasizing its urgency at a conference in Seoul. Representative Kim Sang-hoon articulated that delays could hinder South Korea’s digital currency landscape.

A notable figure from the Special Committee on Digital Assets has also expressed alarm, highlighting that while policymakers deliberate over governance, the real market is advancing rapidly without them.

“In a climate requiring decisive action, discussions have become mired in shareholder stakes, while pivotal matters regarding innovation and market stability languish unaddressed,” he remarked.