tl;dr
South Korea plans to allow banks to issue stablecoins first before gradually expanding permissions to non-banking sectors, aiming to ensure financial regulation and consumer protection. The move responds to rapid growth in digital asset trading and concerns over capital outflows affecting monetary s...
South Korea plans to initially allow banks to issue stablecoins, with a gradual expansion to non-bank sectors to maintain strict financial regulation and consumer protection. This phased approach addresses the rapid growth of digital asset trading in the country, which surged from $12.9 billion in Q3 2024 to $42.4 billion in Q1 2025, raising concerns about capital outflows and threats to monetary sovereignty.
Bank of Korea officials have voiced caution, emphasizing potential risks such as market disruption, financial instability, and the impact on foreign exchange liberalization. Deputy Governor Ryoo Sang-dai highlighted the importance of establishing a safety net to prevent consumer harm and suggested models like narrow banking to mitigate risks by limiting institutions to payment services only, without lending.
The administration of President Lee Jae-myung has prioritized stablecoin regulation through the Digital Asset Basic Act, enabling domestic companies with significant capital (at least 500 million won) to issue won-backed stablecoins. Meanwhile, the Bank of Korea is exploring a hybrid approach where public blockchain-based deposit tokens would coexist with private-sector stablecoins, although some experts remain skeptical about its effectiveness in safeguarding monetary sovereignty.
Governor Rhee Chang-yong supports the issuance of won-backed stablecoins but urges meticulous examination of their impacts on foreign exchange management. The government's approach reflects cautious innovation, navigating the balance between embracing new digital asset technologies and protecting the stability of South Korea's financial system and currency policy.