South Korea's central bank vigilant about non-bank entities issuing stablecoins, market players actively preparing to respond
The Bank of Korea recently issued a warning regarding the issuance of stablecoins pegged to the Korean won by non-bank entities, expressing deep concern that such actions could lead to market chaos.
Bank Governor Lee Chang-yong pointed out at a press conference on Thursday that if multiple non-bank entities issue stablecoins, it could recreate the chaotic situation of rampant private currency issuance in the 19th century, thereby interfering with the implementation of sovereign monetary policy and even challenging the regulatory framework under foreign exchange liberalization policies.
He warned that the arbitrary issuance of stablecoins would disrupt the implementation of monetary policy and might require a reconstruction of the central bank system. At the same time, the involvement of non-bank entities in payment settlements would severely impact the banking profit model.
Lee Chang-yong noted that this issue cannot be decided solely by the central bank and requires cross-departmental consultation. He stated that discussions will commence after the appointment of relevant ministers to determine the direction. His remarks come at a time when the development of stablecoins in South Korea is rapidly advancing.
However, recently, Min Byeong-deok, a member of the Democratic Party of Korea, submitted a draft of the "Basic Law on Digital Assets" aimed at constructing a more structured regulatory framework for crypto assets, which includes licensing requirements for stablecoin issuers. This law aims to supplement existing regulations and may open the door for non-bank entities to participate in stablecoin issuance.
In light of this potential change, banking officials revealed that, given the uncertainty surrounding the issuance rights of non-bank entities, banks are also preparing two parallel plans: one is to explore joint issuance models with banks, and the other is to make preliminary preparations to engage with non-bank entities.
It is noteworthy that the Bank of Korea's actions seem to be shifting focus towards stablecoins. Reports indicate that its CBDC project, "Hank River," has been temporarily suspended after the first phase of testing, during which it will focus on point-to-point transfers, merchant coverage, and identity verification.
The Bank of Korea has also requested participating banks to establish a cross-departmental task force and formulate a long-term planning roadmap, citing current high costs and a lack of commercialization solutions.
Overall, given the uncertainties in the process of legalizing stablecoins and the unclear policies on how to distinguish and coexist CBDC, stablecoins, and deposit tokens, the Bank of Korea has no choice but to adopt a cautious wait-and-see attitude.