韩国央行

Bank of Korea Governor Warns: Promoting Domestic Cryptocurrency Stablecoin Plans May Backfire

The Bank of Korea recently issued a warning regarding the Korean won stablecoin plan, suggesting that it may inadvertently strengthen the position of the US dollar.

Governor Lee Chang-yong pointed out at a press conference on Wednesday that issuing a won stablecoin could stimulate market demand for exchanging into dollar stablecoins, which contradicts President Yoon Suk-yeol's strategy of internationalizing the won through digital finance.

Currently, the global stablecoin market has surpassed $260 billion, with dollar-denominated stablecoins accounting for over 97% of the market value, further highlighting the competitive pressure faced by the won stablecoin.

While the presidential office advocates for the development of a won stablecoin to curb capital outflows, the central bank is more focused on potential risks. Governor Lee Chang-yong emphasized that South Korea needs to prioritize establishing a regulatory framework to address two major challenges: first, the shift of payment and settlement business from the banking system to non-bank institutions could weaken traditional financial stability; second, increasing cross-border capital flows complicate foreign exchange management. Therefore, he also specifically called for an assessment of the changes in profitability in the banking sector against the backdrop of the rise of stablecoins, demanding a more comprehensive financial transformation roadmap.

This policy divergence comes at a crucial time when the US 'GENIUS Act' has just been passed, which will allow dollar stablecoins to expand rapidly on a global scale. It is expected that South Korea's Ministry of Economy and Finance and the Financial Services Commission will work with the Bank of Korea to formulate policies, but how to balance monetary sovereignty with financial stability remains the core challenge facing the won stablecoin strategy.

As of last year, data showed that the won accounted for less than 5% of international settlements; if not handled properly, the digital currency revolution may instead reinforce the dominance of the dollar.

In summary, the warning from the Bank of Korea Governor highlights the complexity and risk factors of monetary policy in the era of digital currency. The planned implementation of the won stablecoin concerns not only monetary sovereignty but also the financial stability of the country and the balance within the global monetary system.

Thus, in the context of the global expansion of dollar stablecoins, how South Korea formulates appropriate policies and balances innovation with risk will be a significant test of its financial wisdom.

What do you think South Korea should do to reasonably formulate its stablecoin policy? See you in the comments!

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Korea's Central Bank's Liquidity Injection for Survival? The 'Death Spiral' and Bottom-Fishing Signals under Interest Rate Cuts

​​1. The Prisoner's Dilemma on the Throne of Easing​​

The Bank of Korea has recently revealed its stance again: a member directly stated in the meeting minutes, "We must continue to inject liquidity," citing the reason that economic data is as bad as a knockdown altcoin after a bear market—manufacturing exports are collapsing, domestic demand is weak, and GDP growth expectations have been slashed from 1.5% to below 1%.

But another member immediately poured cold water on this: "Interest rate cuts? Beware of the liquidity trap backfiring!" This divergence has directly split market expectations, reminiscent of the silence before the double explosion of longs and shorts during BTC's sideways trading.

​​2. Where is the Policy Scythe Swinging?​​

Central Bank Governor Lee Chang-yong's operations can be described as "walking a tightrope"—on one hand, stating, "There may be another interest rate cut this year," while on the other hand warning, "Don’t be stupid and replicate the 2020 flood of liquidity that led to a real estate frenzy." Behind this split operation are two blades:

​​Dollar Scythe​​: The interest rate differential between Korea and the U.S. has widened to 1.75%, and the won has fallen below 1484. Further interest rate cuts would be like giving a green light for capital flight;

​​Inflation Ghost​​: Although the CPI has been suppressed below 2%, energy and import prices could explode at any moment, reminiscent of the seemingly stable balance sheet before the FTX collapse.

​​3. Bottom-Fishing Signal or Death Spiral?​​

Veterans in the crypto circle know: the turning point of policy often represents a critical point of either getting rich or going to zero. This easing game in Korea hides three scenarios:

​​Short-term Long, Long-term Short​​: A 2.5% interest rate is already a 15-year low. Further cuts may briefly stimulate the stock market, but in the long run, the depreciation of the won + capital outflow = a classic death spiral for emerging markets.

​​Arbitrage Window​​: If the won to dollar exchange rate falls below 1500, shorting the won stablecoin on-chain may double the rewards, referencing the arbitrage feast during the collapse of the Turkish lira in 2024.

​​Policy Trump Card​​: The central bank secretly increases "special loans for digital transformation". This targeted liquidity injection is reminiscent of China's 2023 support for Web3, and Korean projects that integrate AI + blockchain concepts might be a hidden line.

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South Korea's central bank launches CBDC transaction tests, expecting 100,000 participants. Is a new era of central bank digital currency upon us?

According to local news reports, South Korea's central bank will begin real-world scenario transaction testing of central bank digital currency (CBDC) this month. The test will involve 100,000 consumers and seven banks, including well-known financial institutions such as the National Bank of Korea, Shinhan Bank, and Hana Bank.

The testing is expected to last three months, during which consumers can use CBDC deposit tokens issued by banks to make payments at places like 7-Eleven, Kyobo bookstore, and the delivery app Ddaenggyeoyo.

In the context of this test, participants will have the opportunity to apply for deposit tokens of up to 1 million KRW (approximately 688 USD), and payments can be easily completed by scanning a QR code, making it very convenient!

However, a spokesperson for the Bank of Korea stated that the test may be postponed to April, as discussions with multiple institutions for cooperation are still ongoing.

We all know that South Koreans are renowned for their enthusiasm for cryptocurrencies! However, to prevent cryptocurrencies from overshadowing their efforts, the Bank of Korea has been working hard to advance its own digital currency project.

As early as November 2023 and November 2024, reports have mentioned that the pilot project plans to introduce a digital voucher management platform to facilitate the government in issuing and tracking vouchers, but the specific implementation date has yet to be announced.

Meanwhile, regulatory bodies have noticed that from large enterprises to startups, everyone is enthusiastic about blockchain technology and is making every effort to invest in this blue ocean, trying to seize opportunities in this emerging field.

In summary, this CBDC test is a significant step for South Korea in the field of digital currency. If the test goes smoothly, South Korea's CBDC could set a benchmark for central bank digital currencies worldwide.

However, some people are concerned about whether CBDC will replace existing cryptocurrencies. After all, the Bank of Korea has clearly stated that they want to replace cryptocurrencies with their own controlled digital solutions. Feel free to leave your opinions and thoughts in the comments section!

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🇰🇷 The Bank of Korea Rejects Bitcoin Reserves, Volatility and Credit Rating Become Roadblocks

The Bank of Korea recently made it clear that it will not include Bitcoin in its foreign exchange reserves, citing excessive price volatility and non-compliance with the International Monetary Fund (IMF) standards for reserve assets. This stance makes the Bank of Korea one of the growing number of financial institutions worldwide that are cautious about cryptocurrencies.

In response to the question from National Assembly member Cha Gyu-geun, the central bank stated that it has not reviewed or discussed plans to include Bitcoin in national reserves and considers the idea unrealistic. Officials pointed out that Bitcoin lacks an investment-grade credit rating, has insufficient liquidity, experiences severe price fluctuations, and is easily affected by market speculation, making it unsuitable as a foreign exchange reserve.

However, South Korea's cautious attitude stands in stark contrast to the approaches of other countries. For example, former U.S. President Trump proposed establishing a "strategic Bitcoin reserve," while El Salvador even made Bitcoin legal tender. These countries value Bitcoin's potential as "digital gold," particularly in terms of its long-term value for hedging against traditional currency risks.

Despite the Bank of Korea's reserved stance on Bitcoin, domestic cryptocurrency supporters are still pushing for the development of digital assets. Some have proposed creating a stablecoin backed by the Korean won to enhance South Korea's competitiveness in the digital asset space. However, the central bank insists that foreign exchange reserves should primarily consist of liquid and stable credit assets, unless supported by the currencies of trade partners.

It is noteworthy that while the Bank of Korea is skeptical about Bitcoin as a reserve asset, they have not overlooked the development of the cryptocurrency space. In fact, South Korea has been actively formulating regulatory frameworks for cryptocurrency exchanges and digital asset trading, trying to find a balance in "seeking progress while maintaining stability."

In summary, the Bank of Korea's cautious attitude towards Bitcoin reflects its emphasis on financial stability. Although global interest in Bitcoin is growing, South Korea has chosen a more conservative path. However, with the rapid development of the cryptocurrency space, whether this attitude will change in the future remains a question worth watching.

What do you think of the Bank of Korea's decision? Do you believe the Bank of Korea will change its attitude in the future?

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