South Korea Considers Homegrown Crypto Issuance Amid Warnings on Stablecoin Risks

The Bank of Korea's Governor Rhee Chang-yong has announced that South Korea is exploring a new framework for domestic virtual asset issuance. This comes in light of concerns regarding won-denominated stablecoins potentially bypassing capital controls. As the country deals with currency volatility, regulatory discussions continue over the governance of stablecoins.

Key Takeaways

South Korea is considering allowing local financial institutions to issue virtual assets.
Governor Rhee warns that won-backed stablecoins could enable evasion of capital control measures.
The Korean won faces pressure amid currency fluctuations and tariff threats from the U.S.
A regulatory deadlock exists over stablecoin governance, with differing views among regulators.

South Korea Eyes Domestic Crypto Issuance as Governor Warns on Stablecoin Risks – What's the Plan?

South Korea Explores Domestic Crypto Issuance

The Governor of the Bank of Korea, Rhee Chang-yong, has disclosed that South Korea is contemplating a registration system to permit domestic institutions to issue virtual assets. He cautioned, however, that stablecoins pegged to the won could facilitate circumvention of capital flow restrictions.

Speaking at the Asian Financial Forum in Hong Kong, Rhee observed that fluctuations in exchange rates could lead to swift migrations to USD stablecoins alongside substantial fund transfers.

This announcement arrives amidst ongoing discussions among South Korean regulators, who remain split over stablecoin policies. The Financial Services Commission and the Bank of Korea disagree on whether only bank-led consortia should be allowed to issue such currencies.

South Korea Stablecoin Crypto Issuance - Lee Chang-yong Speaking at the Forum

Concerns Over Capital Control With Stablecoin Introduction

Governor Rhee highlighted that the introduction of won-denominated stablecoins could lead to the evasion of capital control measures. He noted that stablecoins pegged to the USD are widely utilized and offer significantly lower transaction fees compared to direct dollar transactions.

He expressed concern that exchange rate instability might spur massive transfers into dollar stablecoins when market reactions trigger expectations, complicating regulatory oversight. The non-bank issuance of stablecoins presents unique challenges for authorities.

Despite these issues, Rhee acknowledged the market's push to allow South Korean citizens to invest in foreign virtual assets. He explained that stablecoins tied to the won would primarily be utilized for international transactions, while tokenized deposits would cater to domestic payment needs.

Korean Won Under Pressure Amid Tariff Threats from Trump

The won was valued at 1,446.2 against the dollar at the close of trading on Monday, reflecting a rise following a 5.6 won decline driven by President Trump's tariff threats against Korean exports, potentially raising tariffs from 15% to 25%.

Trump criticized South Korea's legislative responsiveness on his Truth Social platform, correlating the tariff increase with political negotiations.

Impact of Tariff Threats on Currency

Despite initial losses, the won's decline was limited as the South Korean National Pension Service adjusted its foreign stock target downward. This adjustment bolstered the won's value to approximately 1,433.3 per dollar.

Furthermore, the KOSPI index increased by 2.73% to close at 5,084.85 on Tuesday, as investors seized the opportunity following increases in shares of major companies like Samsung Electronics and SK Hynix.

Analyst Min Kyung-won from Woori Bank observed that while Trump’s comments exert negative influence on the won, potential collaborative currency market interventions by U.S. and Japanese authorities might help stabilize its position.

Ongoing Regulatory Disputes Halting Stablecoin Strategy

The Bank of Korea advocates for a framework allowing only bank-controlled consortiums to issue stablecoins, emphasizing that banks should maintain at least 51% ownership to protect financial stability.

Conversely, the Financial Services Commission is cautious about establishing strict ownership criteria, fearing it could hinder technological firms and innovation within the digital payments landscape.

At the Hong Kong forum, Rhee reiterated the need for robust regulation in the digital finance sector, stressing the lessons learned from the 2008 financial crisis. He argued that while South Korea possesses a developed fast payment system, retail Central Bank Digital Currencies (CBDCs) may not provide considerable benefits, although pilot projects are underway for tokenized deposits and wholesale CBDCs.

Despite the ongoing regulatory gridlock, the market shows robust momentum, as South Korea has recently lifted a nine-year ban on corporate crypto trading and is set to implement new legal frameworks for tokenized securities trading starting January 2027.

In October, the Solana Foundation formed a partnership with Wavebridge to create a KRW-pegged stablecoin, while BDACS launched KRW1 on Avalanche in September, ensuring that each token is backed 1:1 by won placed in escrow at Woori Bank.