TLDR
- The Bank of Korea warned that won-based stablecoins could affect foreign exchange stability during volatile periods.
- Governor Lee Chang-yong said stablecoins might be used to bypass capital flow management measures.
- Lawmakers have postponed the submission of the Digital Asset Basic Act due to disagreements over stablecoin regulations.
- The central bank prefers that banks lead stablecoin issuance to reduce systemic and currency-related risks.
- Industry groups want non-bank companies to be allowed to issue stablecoins under regulatory supervision.
South Korea’s central bank has raised concerns over foreign exchange risks tied to won-based stablecoins, as local lawmakers continue to delay legislation on digital assets due to regulatory disagreements. Bank of Korea Governor Lee Chang-yong stressed risks to capital flow controls at the Asian Financial Forum in Hong Kong. The legislative gridlock now affects broader crypto policy, including ETFs and listed firm crypto activities.
Bank of Korea Warns on FX Stability Concerns
Governor Lee stated that won-pegged stablecoins could impact foreign exchange management if used in global transactions. He warned that pairing them with dollar-based stablecoins might enable avoidance of capital flow restrictions. This could affect the country’s control over cross-border money movements during times of volatility.
He said, “Stablecoins are still controversial because of their potential to weaken financial stability.” He added that stablecoins would likely see usage in cross-border activity, raising oversight challenges. The Bank of Korea is examining frameworks for domestic institutions to register virtual assets under strict controls.
While the central bank supports regulated digital asset issuance, it insists on strong safeguards for foreign exchange control. Lee emphasized banks should handle issuance to manage both systemic and currency risks. The comment reflects concerns over how virtual assets could move funds without triggering normal oversight measures.
South Korea Stablecoin Bill Faces Further Delays
Ongoing debates in South Korea’s National Assembly have postponed the submission of the Digital Asset Basic Act. Disputes persist over stablecoin issuers, ownership limits, and who will have regulatory oversight. Lawmakers remain divided over whether banks should be the sole issuers or if non-bank firms can join.
The Bank of Korea favors bank-led issuance models due to concerns around capital flight and monitoring challenges. However, industry players want broader eligibility under regulatory control. They argue that proper licensing and supervision can ensure transparency and compliance.
Discussions have also considered bank-centered consortiums as a possible compromise. However, no formal agreement has emerged from the talks. As a result, the legislative process continues to stall, holding back potential innovation and frameworks.
The delay in this bill affects more than stablecoins. Plans to allow publicly listed firms to trade digital assets are also paused. So is the effort to launch spot-based crypto ETFs in the country.
Currency Pressures Add to Regulatory Uncertainty
Lee’s remarks come during a period of pressure on the Korean won, adding urgency to the capital flow discussion. A Reuters report on Tuesday said authorities face possible large-scale dollar outflows due to trade concerns with the US. The currency has shown weakness, increasing worries around exchange rate stability.
These conditions have made regulators more cautious with digital currency approvals. While supporting innovation, they want to avoid risks that threaten monetary policy. Stablecoins tied to the won create challenges if foreign exchange rules are sidestepped.
