South Korea’s central bank is urging lawmakers to slow down and think carefully before giving the green light to won-pegged stablecoins.
Speaking at a financial forum in Hong Kong, Bank of Korea Governor Lee Chang-yong said officials are exploring a system that would allow local institutions to issue digital assets. But he stressed that stablecoins are still a sensitive topic.
His concern is straightforward and revolves around the fact that won-pegged stablecoins could make it more difficult for authorities to monitor and control money flowing into and out of the country.
Won-backed stablecoins could bypass capital controls in volatile market
Lee explained that the tokens would mostly be used for cross-border payments. In turbulent market conditions, people could use won-based stablecoins alongside dollar-based ones to move funds around quickly, potentially sidestepping existing capital controls and putting pressure on the foreign exchange market.
The statements offered the central bank’s viewpoint on the current legislative impasse in South Korea, where lawmakers are attempting to formalise the issuing of digital assets without compromising financial supervision.
Although the nation has indicated that it is open to controlled cryptocurrency activity, officials are nonetheless wary of systems that can jeopardise current foreign exchange restrictions.
Stablecoin disputes delay South Korea’s digital asset law
Disagreements over how to regulate stablecoins have slowed South Korea’s proposed Digital Asset Basic Act, often seen as the next phase of the country’s crypto rules.
A Sunday report by Chosun Ilbo said the bill’s submission to the National Assembly has been delayed as policymakers remain divided on stablecoin issuance and regulatory oversight.
The main sticking point is who should be allowed to issue won-pegged stablecoins. The central bank favors a bank-led model, arguing it would better manage financial and foreign exchange risks.
Industry groups, however, want a broader system that lets non-bank firms issue stablecoins under supervision. Regulators have discussed a middle-ground approach, but talks have yet to break the deadlock.
Industry groups join hands ahead of Stablecoin Bill discussions
Amid the back and forth between the regulators in South Korea regarding the issuance of stablecoins, industry giants have already formed partnerships to gauge upcoming hurdles.
Hana Financial Group teamed up with several other banks last week to form a stablecoin alliance, according to a January 16 report by Chosun Ilbo. The group includes BNK Financial Group, iM Financial Group, Standard Chartered Bank Korea and OK Savings Bank.
Another lender, JB Financial Group, joined the alliance a few days later, local outlet IB Tomato reported on January 21.
The banks plan to set up a special company that would issue a won-pegged stablecoin, but only after lawmakers remove the current ban on such tokens.
Regulators have proposed a solution that would only let consortiums made up of large banks to issue stablecoins in light of the ongoing standoff between the government and the central bank.
In order to prepare for such a compromise, South Korean financial organisations have formed partnerships to resolve the larger issue.
Additionally, in an effort to stimulate the economy in the nation’s provinces, a number of South Korean regions have recently started won-based local currency initiatives.
However, the majority of these currencies have been issued as digital vouchers rather than tokens that resemble cryptocurrencies due to the prohibition on token issuance.