The Bank of Korea’s Governor has warned about the issuance of stablecoins by non-bank entities, arguing that these digital assets could confuse monetary policies and foreign exchange regulations.
BOK Concerned About Non-Bank Stablecoins
At a Thursday press conference, Bank of Korea (BOK) Governor Lee Chang-yong expressed concerns about the potential issuance of digital assets pegged to the Korean Won (KRW) by non-bank entities.
According to local news outlet Yonhap News Agency, Lee affirmed that “if multiple non-bank institutions issue won-pegged stablecoins, it could lead to confusion similar to that caused by private currency issuance in the 19th century,” likely referring to the Free Banking Era between 1837 and 1864 in the US.
“In such a situation, it would be difficult to implement monetary policy, and adverse effects such as having to go through the process of returning to a central bank system again could arise,” he stated.
The BOK’s governor explained that if won-pegged stablecoins are allowed to be issued indiscriminately, it could conflict with foreign exchange liberalization policies. Additionally, allowing non-bank entities to handle payments and settlement services could also significantly alter banks’ profit structure.
Nonetheless, he considers that the issue can’t be decided by the Bank of Korea alone, as it needs to be discussed with the pertinent authorities. “Once the relevant minister is appointed, we will discuss and determine the direction to take,” he shared.
Lee’s remarks follow the growing momentum of stablecoins in the country. Recently, Min Byeong-deok, a member of the Democratic Party of Korea (DPK), proposed a comprehensive legislation to establish a more structured regulatory framework for crypto assets in the country, which includes a licensing system for stablecoin issuers and clear rules.
The proposed Digital Assets Basic Act is expected to complement the Virtual Asset Investor Protection Act, potentially allowing non-bank entities to participate in the issuance of stablecoins.
A bank official recently told the local news media outlet that the financial institutions are preparing for two legalization scenarios, as it remains unclear whether non-bank entities will be allowed to be stablecoin issuers.
As such, the banking sector is considering a business model in which banks establish a joint venture to collectively issue stablecoins, while also contacting various non-bank companies to prepare for the legalization and issuance of stablecoins.
Meanwhile, another bank official affirmed that banks are discussing stablecoins with the BOK, other banks, “payment” companies, crypto exchanges, and blockchain companies to prepare for the upcoming launch.
South Korea’s Digital Asset Shift
As the atmosphere shifts toward stablecoins, the Bank of Korea has also pivoted to the sector. As reported by Bitcoinist, the financial institution halted its Central Bank Digital Currency (CBDC) project, the Hank River Project, ahead of its second phase of testing.
Notably, the BOK and seven banks finished the first phase of testing in June and originally scheduled the second stage for the end of the year. During the now-suspended phase, the project was going to focus on testing peer-to-peer transfers, expanding payment merchant locations, and simplifying authentication methods.
Banks participating in the project reportedly requested that the BOK establish a CBDC General User Real-Transaction Test Task Force involving all relevant departments of the Bank of Korea and banks.
The request aimed to develop a long-term roadmap, including post-test commercialization plans, as the financial entities were bearing the “excessive cost burden without concrete plans for commercialization.”
According to a senior bank official, the Bank of Korea explained that it would “wait and see how the situation develops, given that the legalization of stablecoins is currently underway, while it is unclear how CBDC, stablecoins, and deposit tokens differ and can coexist.”
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