Bank of Korea Warns of Currency Risks Amid Ongoing Stablecoin Legislation Discussions
The progression of South Korea's stablecoin legislation has hit roadblocks following central bank warnings about potential threats to capital management, regulatory supervision challenges, and exposure to dollar-pegged digital currencies.
The head of South Korea's central banking institution has issued a warning that stablecoins denominated in Korean won could create challenges for managing capital flows, introducing a cautionary perspective to the continuing discussions among legislators regarding whether domestic stablecoins should be authorized and under what conditions they should be permitted, according to reports from local media outlets.
During his address at the Asian Financial Forum taking place in Hong Kong, Lee Chang-yong, who serves as Governor of the Bank of Korea, indicated that government authorities are evaluating a proposed registration system that would permit domestic financial institutions to issue virtual assets, based on reporting by Radio Television Hong Kong. The central bank chief emphasized, though, that stablecoins continue to generate controversy due to their possible effects on foreign exchange market stability.
Lee indicated that stablecoins pegged to the won would most likely find their primary use case in cross-border payment transactions. The governor expressed concerns that Korean won stablecoins, when utilized in conjunction with US dollar stablecoins, could potentially provide a mechanism to circumvent capital flow management controls during times of market volatility.
These statements inject the central bank's viewpoint into the continuing legislative impasse within South Korea, where government policymakers are attempting to establish formal frameworks for digital asset issuance while maintaining robust financial oversight mechanisms. Although the nation has demonstrated willingness to embrace regulated cryptocurrency operations, government officials continue to exercise caution regarding systems that might undermine current foreign exchange management controls.
Lawmakers divided over stablecoin issuers and oversight
Legislative discussions surrounding stablecoin regulations have created obstacles to advancing South Korea's proposed Digital Asset Basic Act, which is frequently characterized as the second stage of the nation's virtual asset regulatory framework.
Based on reporting published Sunday by Chosun Ilbo, the introduction of the legislation to the National Assembly has been delayed as ongoing disagreements continue over regulations governing stablecoin issuance, limitations on exchange ownership stakes, and questions of regulatory supervision authority.
The core of the disagreement centers on the question of which entities should receive authorization to issue stablecoins pegged to the Korean won. The central banking institution has maintained that issuance responsibilities should be assigned predominantly to banking institutions in order to minimize systemic risks and foreign exchange vulnerabilities.
Industry organizations, on the other hand, have advocated for a more inclusive authorization framework that would permit non-banking entities to participate in stablecoin issuance under appropriate regulatory supervision and oversight.
Financial regulatory authorities have reportedly investigated potential compromise solutions involving banking-led consortiums, though forward movement has encountered significant obstacles.
The parliamentary stalemate has additionally postponed deliberations on associated policy initiatives, which include proposals to authorize publicly listed corporations to engage in cryptocurrency trading and the potential launch of spot cryptocurrency exchange-traded funds (ETFs) within South Korea's financial markets.
Lee's cautionary statements arrive during a period of intensified pressure affecting the Korean won currency.
Based on reporting published Tuesday by Reuters, South Korean government authorities are confronting the possibility of substantial dollar capital outflows stemming from trade-related tensions with the United States and ongoing currency depreciation pressures.