The regulatory landscape surrounding digital assets is rapidly evolving, as central banks around the world grapple with the implications of cryptocurrencies and stablecoins. Recent statements from the Bank of Korea’s Governor highlight significant concerns over non-bank issuance of stablecoins.
BOK’s Caution Regarding Digital Assets
During a recent press event, Bank of Korea (BOK) Governor Lee Chang-yong emphasized the necessity for stringent controls on stablecoin issuance. His focus was primarily on the risks posed by non-bank entities creating assets linked to the Korean Won (KRW).
In comments reported by major news outlets, Lee pointed out a potential historical parallel, stating, “If we allow multiple non-bank institutions to mint won-pegged stablecoins, it could mirror the disarray of private currency issuance experiences in the 19th century, particularly during the Free Banking Era in the US.”
He cautioned that such a proliferation of stablecoins could create significant challenges for monetary policy implementation, adding that reverting to a centralized banking approach might become necessary if complications arise.
Lee elaborated that the unchecked issuance could conflict with Korea’s foreign exchange policies. Moreover, the entry of non-bank firms into payment and settlement domains might disrupt existing banking profit structures significantly.
Governor Lee indicated that the conversations around stablecoins should involve multiple stakeholders. “Once the suitable authorities are identified, we will convene to outline a strategic direction for stablecoins,” he stated.
These comments come amid increasing awareness and momentum for stablecoins within Korea. Recently, Min Byeong-deok of the Democratic Party of Korea proposed a comprehensive framework aimed at regulating crypto assets. This includes the introduction of a licensing system for stablecoin issuers and outlining operational guidelines.
The proposed Digital Assets Basic Act is poised to reinforce the existing Virtual Asset Investor Protection Act, potentially facilitating non-bank participation in stablecoin issuance.
In light of uncertain regulations, banking institutions have begun to prepare for a range of scenarios regarding the legalization of stablecoins. They are exploring the establishment of joint ventures to collectively issue stablecoins and are engaging with various non-bank firms for collaborative efforts.
Additionally, bankers confirmed that discussions are ongoing with the BOK and industry players, including payment firms and blockchain providers, to navigate the challenges of launching stablecoins effectively.
South Korea’s Transition to Digital Finance
The Bank of Korea is adapting to a financial landscape increasingly dominated by digital assets. Reports indicate that the BOK has paused its Central Bank Digital Currency (CBDC) initiative, known as the Hank River Project, prior to its planned second phase.
The initial phase of the CBDC project concluded successfully in June, with plans to begin peer-to-peer transfer tests and enhance merchant payment access. However, those involved in the project expressed a need for the BOK to convene a task force to outline future commercialization plans.
This upcoming task force aims to secure a long-term strategy, addressing the heavy financial burdens on the banks without clear pathways for monetization post-testing.
A senior BOK official stated, “As we assess the ongoing developments with stablecoin regulations, it’s essential to clarify how CBDCs, stablecoins, and deposit tokens can coexist in this evolving financial ecosystem.”
