South Korea’s Central Bank Warns of Won-Stablecoin Risks
South Korea’s central bank chief warned that Korean won-denominated stablecoins could complicate capital flow management, adding a note of caution to an ongoing debate among lawmakers over whether and how domestic stablecoins should be issued, according to local reports. The Bank of Korea Governor Lee Chang-yong expressed concerns that stablecoins remain controversial due to their potential impact on foreign exchange stability.
Speaking at the Asian Financial Forum in Hong Kong, Lee said authorities are considering a new registration framework that would allow domestic institutions to issue virtual assets, according to a report by Radio Television Hong Kong. He cautioned, however, that stablecoins could be used to bypass capital flow management measures in periods of volatility, particularly if won-pegged stablecoins are used mainly for cross-border transactions.
Debate Over Stablecoin Rules
The remarks added the central bank’s perspective to the ongoing legislative standoff in South Korea, where policymakers are trying to formalize digital asset issuance without weakening financial oversight. While the country has signaled openness to regulated crypto activity, officials remain cautious about mechanisms that could undermine existing foreign exchange controls. The debate over stablecoin rules has slowed progress on South Korea’s proposed Digital Asset Basic Act, often described as the second phase of the country’s virtual asset regulations.
According to a Sunday report by Chosun Ilbo, submission of the bill to the National Assembly has been postponed as disagreements persist over stablecoin issuance rules, ownership caps for exchanges, and regulatory oversight. At the center of the dispute is who should be allowed to issue won-pegged stablecoins, with the central bank arguing that issuance should be led primarily by banks to limit systemic and foreign exchange risks.
Industry Groups Push for Broader Authorization
However, industry groups pushed for a broader authorization system that would allow non-bank companies to participate under regulatory supervision. Financial authorities have reportedly explored a compromise involving bank-led groups, but progress has stalled. The legislative deadlock also delayed discussions on related initiatives, including allowing listed companies to trade crypto and the introduction of spot crypto exchange-traded funds (ETFs) in South Korea.
Lee’s warnings come against a backdrop of renewed pressure on the Korean won. According to a Tuesday Reuters report, South Korean authorities are grappling with potential large-scale dollar outflows amid trade tensions with the US and a weakening currency. For more information on this topic, readers can refer to Here
Smart Tip for Readers
To stay informed about the evolving landscape of stablecoins and their potential impact on financial markets, readers should regularly consult reputable sources and follow updates from regulatory bodies, such as the Bank of Korea, to better understand the implications of stablecoin adoption on capital flow management and foreign exchange stability.
