Bank of Korea warns that local stablecoins will increase dollar dependence

The Governor of South Korea’s central bank, Rhee Chang-yong, said he is concerned about the country’s early-stage explorations of Korean won-pegged stablecoins, saying they could induce more demand for the U.S. dollar. He noted that this could pose challenges for the central bank in overseeing foreign exchange.

In a press briefing on Wednesday, Rhee said issuing won stablecoins may not reduce the use of dollar stablecoins, but rather facilitate the exchange between dollar stablecoins and won stablecoins, which may increase the demand for dollar stablecoins.

However, his warning clashed with new South Korean President Lee Jae Myung’s agenda to promote won-pegged stablecoins, mainly to prevent capital flight.

The ruling Democratic Party proposed earlier this month that the Digital Asset Basic Act, designed to set up regulatory infrastructure, needs to allow local companies to issue won-denominated stablecoins.

President Lee appointed Kim Yong-beom, a former crypto firm chief, as his chief policy officer in his first week in office, further boosting speculation that the government would allow issuance of stablecoins backed by the Korean won.

Rhee says he is not against the issuance of a won-backed stablecoin 

Rhee pointed out that he is not opposed to the issuance of a Korean won-pegged stablecoin and, in fact, saw a need for it. However, he added that the impact of such a stablecoin on the monetary system would depend on the form of issuance and the type of assets backing it.

Governor Rhee also pointed out that allowing non-banking institutions to issue won-based stablecoins freely could seriously weaken monetary policy.

An official from a local commercial lender also said stablecoins are not yet lucrative for banks. But if the won-based stablecoin materialized, banks would, of course, want to play a central role.

The proposed stablecoin seeks to reduce reliance on dollar-backed stablecoins, which the Bank of Korea said reached $41.6 billion (56.95 trillion won) on Korea’s five major cryptocurrency exchanges–Upbit, Bithumb, Korbit, Coinone, and Gopax–in Q1 2025, marking a threefold increase from 17.06 trillion won in the third quarter of 2024.

An official from the BOK also said the issuance of stablecoins could increase the money supply and potentially affect the status of the won. The official reportedly said it was necessary to approach the matter cautiously, adding that another potential loophole lay in cross-border transactions, possibly threatening the country’s financial stability.

South Korea pushes stablecoin bill under new president

South Korea’s new president, Lee Jae-myung, is moving fast on campaign pledges as the ruling Democratic Party proposed the Digital Asset Basic Act, which was announced on Tuesday to issue local stablecoins. The bill aims to improve transparency and boost competition within the crypto sector. The move also came as stablecoin trading in South Korea surged, reaching 57 trillion won in Q1 alone.

Under the proposed law, South Korean firms could issue stablecoins if they held at least 500 million won in equity capital. These issuers must maintain sufficient reserves and gain approval from the Financial Services Commission (FSC). However, Governor Rhee voiced opposition, warning that private stablecoins could undermine the central bank’s control over monetary policy. 

President Lee’s push for broader crypto integration also included proposals for the national pension fund to invest in Bitcoin and permitting Bitcoin ETFs. Governor Rhee said the central bank would work with the Ministry of Economy and Finance and the Financial Services Commission to establish appropriate measures as soon as possible.

“We would need to consider the broader implications for bank profitability and structural changes if payment and settlement functions — traditionally handled by banks — are expanded to the non-banking sector.”

–Rhee Chang-yong, Governor of the Bank of Korea (BoK)

The central bank argued that it should lead in regulating a local currency stablecoin. Additionally, establishing a committee to guide crypto policy will ensure the regulatory framework is comprehensive and practical. It will promote the use of digital assets while protecting consumers and ensuring the financial system’s stability.

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