Stablecoins in South Korea Draw Central Bank Scrutiny
The South Korean central bank, the Bank of Korea, has issued a formal warning regarding stablecoins operating in the country, citing concerns over their potential impact on capital outflows and currency stability.
Lee Chang-yong, Governor of the Bank of Korea, remarked at the Asian Financial Forum:
“As authorities mull a new registration regime governing digital asset issuance, stablecoins are perhaps the most controversial and sensitive issue in financial regulation.”
Lee added that policymakers must closely monitor won-linked stablecoins, as they may become new sources of risk in foreign exchange management, according to local media reports.
Won-Pegged Stablecoins Could Undermine Capital Controls
According to Governor Lee, won-pegged stablecoins are likely to be used primarily for cross-border transactions rather than domestic payments.
However, he cautioned that during periods of market turmoil, stablecoins pegged to the won—especially when used alongside US dollar-backed stablecoins—could allow capital to move in and out of the country while bypassing existing controls.
Such activity, he warned, could weaken South Korea’s capital flow management and currency stability during times of financial stress.
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Lawmakers Divided Over Stablecoin Regulation in South Korea
The central bank’s warning has further complicated discussions around South Korea’s Digital Asset Basic Act, often described as the second phase of the country’s cryptocurrency regulation framework.
Progress on the bill has stalled as lawmakers remain divided on several key issues:
- Who should be permitted to issue won-denominated stablecoins
- Restrictions on the ownership of crypto exchanges
- Which authority should regulate digital asset markets
At the heart of the debate lies the question of issuance authority.
Who Should Issue Won Stablecoins: Banks or Crypto Firms?
According to the Bank of Korea, commercial banks should take the lead in issuing won-pegged stablecoins, citing their experience in risk management and regulatory compliance.
In contrast, crypto-native firms have pushed for a more inclusive licensing framework that would allow non-bank entities to issue stablecoins under regulatory supervision.
Discussions around potential compromise models, such as bank-led consortiums, have stalled—further delaying broader crypto policy reforms.
Regulatory Gridlock Delays Broader Crypto Reforms
The legislative impasse has also placed several related initiatives on hold, including:
- Allowing listed companies to trade cryptocurrencies
- Approval of spot crypto exchange-traded funds (ETFs) in South Korea
Policymakers are now weighing the rapid growth of digital tokens against the imperative of maintaining financial stability.
Won Faces Pressure as Economic Risks Mount
The warning comes amid increasing pressure on the Korean won, as concerns grow over potential large-scale capital outflows in US dollars.
Recent reports suggest South Korea is on alert due to a trade dispute with the United States and the weakening won, with regulators wary of any developments that could further accelerate capital flight.
The Global Stablecoin Dilemma
Regulators worldwide are grappling with how to encourage innovation in digital assets without undermining financial oversight.
While South Korea has shown openness to regulated cryptocurrency adoption, officials remain cautious about introducing instruments that could weaken foreign exchange supervision during periods of global economic uncertainty.
For now, the future of won-denominated stablecoins remains unresolved—caught between the drive for financial innovation and the central bank’s commitment to monetary and FX stability.
